AirBnB (NASDAQ:ABNB) stock, which rose fast as the economic reopening approached, has fallen hard lately.
It’s another example of how Wall Street buys the rumor and sells the news.
First quarter numbers weren’t bad. Revenue rose 5% and free cash flow came to $487 million. The amount of unearned fees more than doubled to $946 million, meaning more growth is on the way.
The stock, however, remained on the downward trajectory it has held for three months. It opened for trade May 19 at about $137/share. That’s still a market cap of around $85 billion, on what should be sales of $3.4 billion for the year. But it’s well down from a February high of $219.94.
It Was Too High
I’m high on the ABNB business model. I’ve used the service. I’ve been satisfied. But when I’ve looked at the numbers, soon after its December IPO and again in April, I haven’t seen a buying opportunity.
Back in January, for instance, ABNB stock was worth even more than Booking.Com (NASDAQ:BKNG), the longtime leader in travel reservations. That has since reversed, but Booking is still a better business. It had 2020 revenue of $6.8 billion, it should benefit from a return to travel, and it has a broader product line.
The travel reservation business looks like a two-horse race, with AirBnB stock and Booking stock miles ahead of rival Expedia (NASDAQ:EXPE). But look again. Expedia’s revenues were higher than AirBnB’s last year. It has its own home rental arm, called Vrbo, which is taking market share from AirBnB. But EXPE’s value is still under $25 billion. To me that makes it a better value.
Old Problems Return
Booking and Expedia grew up within the old travel ecosystem of planes, hotels, and rental cars. The argument of AirBnB bulls is that this is broken, disrupted by “the people” getting into the business. That’s still the argument. The 31 analysts at Tipranks covering AirBnB stock still have an average price target of $181.28.
But the return of travel also brought back AirBnB’s pre-pandemic problems. Guerilla action is growing against “illegal” AirBnBs let in violation of city ordinances. Tenant groups argue they’re being priced out by one-night rentals and the problem of homelessness is increasing.
Cities around the world, especially in popular European destinations, are tightening rules against AirBnB. The pressure is likely to increase this year. Many AirBnBs reverted to rental housing during the pandemic, for regular income. Reopening means units will go back to being offered as nightly rentals, stranding the new tenants.
But how much of that growth will come from disruption and how much from just cutting costs? Chesky is moving workers out of San Francisco and into Atlanta, where the rents are lower and the city celebrates tech tenants instead of vilifying them. That’s a hit for profits. The underlying business problems will remain.
ABNB Stock: The Bottom Line
AirBnB should be worth a premium price. It should continue to grow.
But the premium is too high right now. If I were buying a travel stock it would be Expedia, which trades at about 6 times sales. AirBnB is trading at closer to 20 times sales.
AirBnB does have marketing advantages over its rivals. Its brand name is dominant when you’re looking to rent a house for a day or a week. But how much of the travel market will that represent? That’s the question I’m asking as the world emerges from lockdown, blinks its eyes, and looks to travel again.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.