Travel platform Airbnb (NASDAQ:ABNB) scored one of the biggest initial public offerings (IPOs) by market cap in 2020. However, the growth in ABNB stock has been mostly flat due to the uncertainty surrounding travel demand and its lofty IPO price.
These demand trends are likely to improve as the pandemic is mitigated. Airbnb has an unmatched business model with excellent competitive strengths, making it a solid Covid-19 recovery play.
ABNB stock has been on a negative run in the past three months, dropping roughly 20% of its value. It’s been a challenging period in general for growth stocks such as ABNB. The stock currently trades at a 16.5% discount to analysts’ price targets.
Moreover, it also trades cheaply in comparison to other top growth stocks. For instance, Lemonade (NYSE:LMND) stock has a forward enterprise value to sales ratio of 35 times while ABNB stock is at roughly 15 times. Hence, it’s an excellent opportunity to buy the stock at a massive bargain.
Pandemic Recovery Can Boost ABNB Stock
Airbnb had a rough 2020 along with the rest of the hospitality industry. Global tourism saw nearly one billion fewer international travelers last year due to Covid-19. However, as more people get vaccinated, pent-up demand for global travel is likely to bounce back. In the United States, which is Airbnb’s biggest market, 49% of the population is fully vaccinated.
Recreational demand is likely to recover first, which should greatly benefit Airbnb. The pandemic has stimulated travel to smaller urban and rural areas. Airbnb’s rural share has improved significantly from 10% of total nights in 2015 to 22% in 2021.
Its latest quarter saw a 5% improvement in revenues on a year-over-year basis. The increase was mainly driven by strong performance in North America.
Moreover, the improvement in vacation rentals will also benefit Airbnb’s margins. As vaccine distribution grows worldwide, people will become more comfortable traveling further away from home. 2021 is the starting point in the pandemic recovery process. The hospitality industry should bounce back in the latter half of this year and throughout 2022.
Long-Term Growth Is on the Horizon
In the past year, there have been some major paradigm shifts in the work and travel industries that could benefit Airbnb. Several companies around the world have the infrastructure for employees to work remotely. People can travel more and can effectively work from anywhere without being physically present.
In light of these changes, Airbnb introduced more than 100 new upgrades to its platform back in May. The new features provide more flexibility in its search options, allowing customers to search for week-long vacations or a weekend getaway. These options tend to be more lucrative for Airbnb. They also create a better guest experience and streamline the platform to reduce inefficiencies.
Additionally, Airbnb is expanding into nature, outdoor activities, culture, food and drinks with a new segment called “experiences.” This new offering could be a major source of growth.
Overall, management believes the company’s total addressable market could be worth a whopping $3.4 trillion.
ABNB Stock Has Strong Potential to Rise
ABNB stock has been relatively muted since its IPO (for obvious reasons.) However, as we edge closer to a post-pandemic reality, ABNB stock could be one of the best Covid-19 recovery plays.
Airbnb is exploring lucrative growth opportunities and investing in its platform to stay on top of new market trends. With the hospitality industry expected to mount a recovery in the latter half of the year, ABNB stock should take off in a big way around the same time.
On the date of publication, Muslim 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
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.