With travel season now in full swing and demand growing for extended stay vacation rentals, the conditions are right for Airbnb (NASDAQ:ABNB) stock to rebound over the summer.
It’s been a tough year so far for ABNB stock and and its holders. Shares of the San Francisco-based company that operates the largest online marketplace for home vacation rentals and related tourism activities has fallen 33% since hitting a peak of $219.94 on Feb. 11.
At the current levels around $150 a share, ABNB stock has now given back most of its gains since the company went public last December. However, with summer here and travel expected to roar back, the conditions look favorable for Airbnb’s shares to finally reverse course and move higher.
Airbnb was hurt last year along with the entire tourism sector. However, the company’s bookings rose 52% in this year’s first quarter from the fourth quarter of 2020. The majority of reservations made during Q1 were for the second half of this year. That indicates that Airbnb should see improved revenue growth in the coming months. And Airbnb is pushing to attract customers as Covid-19 restrictions ease and people emerge from pandemic isolation.
In May, Airbnb unveiled 100 upgrades to its online platform. These include greater flexibility when searching for destinations and an easier process to sign up as an Airbnb host. The company is also distinguishing itself from its hotel rivals by focusing on extended stays of a month or longer.
CEO Brian Chesky recently said that the company is increasingly renting properties for “long-term stays” of 28 days or more. Chesky added that long-term stays are becoming particularly popular in expensive cities such as New York and London.
Wide Scope, Dominant Market Share Underpin ABNB Stock
It’s important to remember the size and scope of Airbnb. Although the company has only been around since 2008, its business has scaled to epic global heights. Today, there are more than seven million active listings on the platform. The company boasts more than twice as many units available for rent than the combined total of 3.3 million units available at hotel chains Marriott International (NASDAQ:MAR), Hilton Worldwide (NYSE:HLT) and InterContinental Hotels (NYSE:IHG) combined.
There are now active Airbnb listings in 100,000 cities in 220 countries, with an average of 14,000 new hosts joining the platform each month. In the 10 years preceding the pandemic (2009 to 2019), Airbnb’s compound annual growth rate (CAGR) averaged 153%. That’s impressive growth. Not that Airbnb doesn’t face competition. In addition to traditional hotels, Airbnb also faces competition from websites such as Expedia (NASDAQ:EXPE) — and its unit VRBO — Booking.com, TripAdvisor (NASDAQ:TRIP) and HomeToGo, among others.
However, despite an increasingly crowded marketplace, Airbnb continues to dominate with a 20% share of the vacation rental market that is worth an estimated $87 billion. It’s also been transformed from just a brand to a concept or generic, as is “to Airbnb an apartment.”
Improving Financial Picture
The big knock on Airbnb, and the reason for its falling share price, is that the company is not yet profitable. In this year’s Q1, revenue totaled $887 million, a 5% year-over-year increase. However, the company’s net loss in the period ballooned to $1.2 billion, compared to $341 million in the previous year’s Q1. Airbnb attributed the most recent net loss to the impact of the global pandemic, along with product development expenses that increased 40% YoY and administrative expenses that rose an annualized 107%.
Executives at Airbnb continue to stress that despite its mammoth size, Airbnb remains in hyper-growth mode and is operating largely as a start-up. Like a lot of richly valued start-up companies, ABNB stock is quite expensive at its current level. The company’s shares trade at a trailing 12-month price-to-sales ratio of 14.44, which is nearly 800% higher than the 1.61x that is the industry average among vacation rental companies. The expensive valuation could be justified if Airbnb’s growth returns to its pre-pandemic levels in this year’s second half.
Buy ABNB Stock For Future Growth
While not perfect, there is a lot to like about ABNB stock. Airbnb remains a market leader in the vacation rental sector, continues to grow exponentially and is a truly global company with operations all around the world.
According to Allied Market Research, global leisure travel is forecast to grow at a CAGR of 22.6% through 2027 and reach $1.74 trillion. Airbnb is well-positioned to grab a chunk of that market. The company’s focus on growth and innovative products and services appears to be the right strategy to shake-up the staid tourism market.
Analysts seem to agree that ABNB stock is likely to trend higher in coming months. The median price target on the company’s share price is $170, implying a 13.3% gain from current levels. The high estimate on the stock is $220 per share.
Investors looking to benefit from the travel rebound this summer should buy shares of Airbnb. The market conditions are now favorable for the company and its stock to turnaround after a difficult year.
Disclosure: On the date of publication, Joel Baglole 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.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.