Can Airbnb (NASDAQ:ABNB) stock overcome Covid-19 and its variants?
Things are not looking good for the homestay and vacation rental company as the latest omicron variant of Covid-19 rampages across the world.
Since the omicron variant was first detected in South Africa during the Thanksgiving long weekend at the end of November, ABNB stock has fallen 15% to its current price of $157.34 a share. It’s been a stark reversal for Airbnb stock, which had risen 58% from mid-July to a peak of nearly $208 per share heading into Thanksgiving.
It seems that each time Airbnb’s stock recovers from Covid-19, it gets pushed lower by a new variant of the respiratory disease — first the Delta and now the omicron variants. This situation rightly has shareholders wondering if it’s worth it to continue holding ABNB stock in their portfolio.
Lockdowns and ABNB Stock
As Covid-19 lockdowns go, so too does ABNB stock. Airbnb shares have swung from high to low based on the situation with the global pandemic at a given moment. After holding its initial public offering (IPO) in December 2020, ABNB stock peaked at a shade below $220 a share in February of this year.
Since then, the stock has declined 39% through mid-May, only to rise 30%, fall nearly 10%, increase 26%, and, most recently, fall 15%. The rollercoaster ride in the share price is driven by threats of renewed lockdowns as new variants of Covid-19 emerge and spread quickly in all jurisdictions.
With the omicron variant spreading faster than any previous version of Covid-19 and European countries such as Norway, Denmark, the Netherlands and Germany imposing new lockdown measures to slow the spread, ABNB stock is again taking it on the chin.
The current situation is unfortunate given that Airbnb had been recovering since late summer and heading into the winter. In this year’s third quarter, the company reported that its revenues from bookings grew 67% year-over-year. Airbnb’s net income, or profits, rose 280% to $834 million on a year-over-year basis during Q3.
The company had said that it expects revenue between $1.39 billion and $1.48 billion in the current fourth quarter, in line with analysts’ forecasts.
Sadly though, the earnings and forward guidance were each reported before the omicron variant emerged. The outlook for vacation rentals and Airbnb’s fourth quarter results have darkened considerably in the last few weeks.
Valuation and Profitability
While the pandemic remains a very large elephant in the room with Airbnb and its shareholders, the company’s stock has also been hurt by two other issues: a high valuation and inconsistent profits.
Currently, ABNB stock trades at nearly 20 times trailing 12-month sales, which is high for a relatively young company that has yet to string together consecutive quarterly profits.
RBC Capital Markets cited the high valuation when it downgraded Airbnb’s stock to “sector perform” from “outperform” and lowered its price target on the shares to $175 from $195 previously.
Profitability also weighs on ABNB stock. While the company reported net income of $834 million for this year’s third quarter, it reported a net loss of $782 million in the first quarter of the year, and a net loss of $68 million in the second quarter.
Going forward, Wall Street will want to see consistent and growing profits from Airbnb to justify holding and adding to their positions in the company’s stock.
Analysts do forecast that Airbnb’s revenue will grow from $5.9 billion this year to $13.6 billion in 2025, which would amount to a compound annual growth rate (CAGR) of 23%.
Wait on ABNB
Airbnb remains a great brand and has a lot of potential, but there are problems. Bookings for its more than seven million rental properties around the world continue to be negatively impacted by the pandemic as new variants emerge and spread.
The company’s stock remains highly volatile and subject to extreme peaks and valleys. The high valuation and lack of regular profits only adds to the volatility.
Given the broader market gyrations that are ongoing, now is not a good time to invest in Airbnb. Investors would be best advised to wait until the Covid-19 pandemic retreats for good before taking any position.
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.