Airbnb debuted strongly, closing considerably higher on its first trading day. Since IPO, Airbnb continued to rise and hit an all-time high close to $220 in mid-Feb 2021. Subsequently, Airbnb has declined steeply in line with other growth stocks. Currently, Airbnb is trading around $148 which is >30% below its ATH.
In this post, I’m sharing my thoughts on why I believe that Airbnb is still a compelling investment. See my previous post on Airbnb here.
Bull case
- Adaptability to domestic travel and longer term stays
- Potential beneficiary of permanent remote work arrangements
- Narrowing losses, adjusted EBITDA improving although still negative
- Gross booking value (GBV) and Revenue back to pre-pandemic 2019 levels
- Reopening play, beneficiary of US quick vaccination rollout
- Network effect as more hosts join the platform providing more choices and unique experiences
- Economic empowerment for hosts
- Operating cash flow and FCF positive, cash and equivalents $6.6B
Bear case
- Bookings will continue to be volatile due to significant increase in cancellations in Q2 2020
- Huge Q1 2021 net loss of $1.17B, though significant items of $782m appear to be one-off, watch for one-off items in coming quarters
- Stock-based compensation pretty significant at $229m, likely due to IPO, expect to taper off in coming quarters
Valuation
- Last price $148.44 (11/6/2021)
- Market cap $92B
- Revenue ttm $3.42B
- P/S 27x
- Tipranks analyst average price target $172 +16% upside
My Thoughts
Airbnb seems really compelling as a reopening play as vaccinations rollout in more countries and the potential of borders reopening becomes closer to reality. Even during a pandemic when almost all travel evaporated, Airbnb still managed to survive and rebound so quickly, recovering to pre-pandemic levels already.
Airbnb has shown resilience and adaptability, and has been taking the chance during this pandemic to improve its services and cut costs. Even in the current state of travel restrictions, I’m pretty sure Airbnb can continue to survive and even thrive within domestic travel, longer term stays, and potentially permanent remote work arrangements.
I bought a small starter position in Airbnb (ABNB) at $145, which is slightly above what I believe to be a near-term support level. This is definitely a much higher price than I was willing to pay prior to IPO, but with more information and seeing how well Airbnb has weathered the pandemic, I’m more willing to accept a higher valuation.
With inflation and rate hike fears somewhat easing, I’m optimistic that ABNB will continue to gradually trend higher especially if we get good news about vaccinations and slowing infections in most countries.
Before I put in more money though, I would like to see bookings and revenue continue to grow strongly, profitability improve, and one-off costs and SBC taper off in coming quarters. I intend to continue my research into the company to help decide whether to continue building my position or to abandon it.
That said, I’m still very much optimistic on Airbnb as the future of travel, a strong platform with growing network effects, powerful brand, and an empowering force allowing hosts anywhere in the world to earn income and monetize their spare bedrooms.
I believe there will still be a place in the market for traditional hotels, but as travelers search more for unique stays and experiences, Airbnb will continue to thrive with or without pandemic-induced travel restrictions. I love travel, and I believe travel still brings with it an allure that cannot be dampened permanently by the pandemic.
What do you think about Airbnb? Are you a shareholder or are you thinking about becoming one?
Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.
Disclosure: I’m long Airbnb ABNB.