Due to the unique nature of the novel coronavirus pandemic, the hospitality industry suffered the most at the hands of this virus. So, it was surprising Airbnb (NASDAQ:ABNB) stock debuted in December at just over $100 billion, making it the biggest U.S. initial public offering of 2020.
However, for many analysts, it was not all that shocking.
Last year was a bumper one for tech stocks. Companies with a primarily brick-and-mortar presence certainly struggled. Nevertheless, those with an asset-light model made amazing strides last year.
That is precisely why Airbnb is doing so well.
However, due to all the hoopla surrounding the home rental firm, valuations are sky high and have been this way for quite some time. The good thing is that the stock is down 28% in the last three months.
On the whole, I have nothing but good things to say about ABNB stock. Now that it is trading at a more reasonable valuation, the time is ripe to add more to your portfolio.
ABNB Stock Is One of the Best Recovery Plays Out There
Airbnb more than tripled from its IPO price of $68 to reach an all-time peak of $216.84 in February. However, as of this writing, shares are trading just over $148 a pop. Considering the main argument against Airbnb has been valuation, it seems that it may be the ideal time to analyze this company again.
Truth be told, the online travel agency did not do that badly during a very challenging year. In 2020, ABNB’s platform had 5.6 million active listings by roughly 4 million hosts worldwide.
Plus, last year proved to be a watershed moment for Airbnb since it went public with a listing on the Nasdaq on Dec. 10. On its first day of trading, the stock jumped 113% from its IPO price of $68 to close at $144.71. That should give you some indication of how highly investors value this stock.
And what’s not to like?
Airbnb has become a major disrupter in the hospitality industry. As it manages through its second decade in business, the online hospitality marketplace continues to expand its offerings. Now with the pandemic withdrawing to the background, it has introduced over 100 upgrades to its platform to cash in on the return of international travel.
Airbnb’s “single priority” in 2021 is to prepare for a “significant travel rebound,” CEO Brian Chesky said on the company’s earnings call. If the upgrades are any indication, the plan is in full motion.
Looking ahead, Airbnb has nowhere to go but up. The company reported $887 million in the first quarter of 2021, a figure higher than Q1 2020 revenue of $842 million and Q1 2019 revenue of $839 million.
And this is a hospitality industry that is still recovering. Airbnb estimates its total addressable market to be $3.4 trillion, including revenue from short-term stays, long-term stays, and experiences.
Last year, total revenue stood at 2020 revenue was $3.4 billion and is expected to grow 60% year-on-year in 2021 to $5.4 billion. Still, it is just a slice of the overall pie for ABNB. There is a lot of room to grow at the expense of traditional travel agencies.
Finally, the business model will ensure there is plenty of cash available for growth. A hotel company will typically invest millions and build a new multi-story building to increase the total number of rooms available. In comparison, Airbnb just needs to persuade more property owners to list on their platform.
Dealing With Regulatory Pressures
While there is a lot to like about ABNB stock, one should also be conscious of risks.
The most obvious one is regulatory pressure from authorities who have criticized Airbnb for distorting the local rental market and making it harder for people to find long-term accommodation.
Barcelona has made rentals less than 30 days illegal without a license. New York City is Airbnb’s largest market but the city says up to two-thirds of Airbnb’s listings are illegal.
San Francisco has adopted a similar policy as New York: Airbnb rentals are allowed only if hosts are full-time residents, bookings are capped at 90 days, and all hosts must register with the city. This has led to a drop in Airbnb listings by 50%.
Moving forward, these legal challenges can increase substantially for ABNB stock.
Worth the Risk
ABNB stock has all the right ingredients for a multi-bagger. When investing, you need to dedicate a significant chunk of your portfolio to companies that are disruptors.
Airbnb possesses a wonderful business model. Even though the market cap might seem huge, it is a steal considering the growth potential.
Five years from now, you will look back fondly on this purchase.
On the date of publication, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.