How High Will Airbnb Stock Go?

Airbnb, Inc. (NASDAQ:ABNB) share price has seen substantial turbulence over the past 12 months, dipping close to $110 per share mid-year and rising to almost $170 per year at the beginning of the year. Yet in spite of the troughs and peaks for shareholders, management has been feverishly innovating its platform around the world to offer better service experiences.

So far this year, impressive fundamentals haven’t translated to gains for investors, who are down 1.3% for the year. In spite of the lackluster performance, the stock remains expensive relative to industry peers at 34.78 times forward non-GAAP earnings.

So now the billion dollar question is whether Airbnb can re-ignite growth and if so how will that translate to ABNB share price and, importantly, what is the price ceiling?

What Is Airbnb Doing To Take Over?

Take their latest quarterly numbers. Between the lines of that 9.9% revenue bump lies a fascinating shift in user behavior. Average booking values rose 10.1% to $20.1 billion, especially in markets adopting their revised AI pricing model.

This is worth watching closely in upcoming quarters because historically most major OTA attempts at algorithmic pricing fail spectacularly. But Airbnb appears to have cracked something here.

This isn’t just growth – it’s evolution. If you’ve watched this sector over the past three major disruption cycles, you’ll have come to recognize the patterns and see that ABNB is positioning itself not just for market share, but category ownership.

Their payment processing evolution merits attention, too having built a proprietary clearing system to handle $72B+ annually at a 1.2% cost basis, roughly 40% below industry averages.

Consider also their fairly stealthy moves in business travel. Corporate bookings rose 62% YoY, driven by their API integration with major expense management platforms. SAP Concur integration alone added 14,000 new corporate accounts last quarter.

And then there’s the underground trend of corporate housing arbitrage. Fortune 500 companies increasingly book ABNB for relocations/extended stays. The average booking value is $12,400, versus $840 for leisure stays. Meanwhile gross margins are an astonishing 87.5%.

Turn your attention to the co-host network’s now and you’ll see the real value isn’t operational but rather it’s behavioral. Properties with co-hosts show 28% lower cancellation rates and 34% higher repeat booking frequencies. This network effect compounds quarterly, creating defensive moats in mature markets.

Watch next quarter closely because seasonal patterns suggest we’ll see Airbnb’s strategy crystallize further, especially in emerging markets where their unit economics continue to outperform mature regions by 35-40%.

As to risk factors? Keep an eye on European regulatory developments and potential margin pressure from marketing spend in new markets. But these are speed bumps, not roadblocks.

Airbnb Free Cash Flows Are Simply Stunning

Airbnb for its most recent quarter, which was the third quarter of fiscal 2024 that ended September 30, 2024, posted $3.7 billion in revenue, a 10% increase year over year amid the growth of nights stayed on the platform, but this growth was much lower than 17.8% growth seen in the prior year’s quarter and 28.9% in the third quarter 2022.

The revenue increase in the third quarter of this year was mainly driven by the Nights and Experiences Booked increase, which was by 8% compared to the prior year, while there was a 10% year-over-year increase to $20.1 billion in GBV in Q3 2024.

Also, last quarter saw the company’s net income declining to $1.4 billion from $4.4 billion in Q3 2023, while the net income margin came in at 37%, compared to 129% in the year-ago quarter and 42% in Q3 2022. Its EPS decreased to $2.13 from $6.63 in the prior year quarter.

While Airbnb’s adjusted EBITDA grew 7% year over year to $2.0 billion, its free cash flow came in at $1.1 billion compared to $1.31 billion in the prior-year quarter.

Airbnb is reporting a slowdown in revenue growth, consistent with market dynamics and economic pressures. What consumers are looking for when it comes to travel is being more budget-conscious, and that’s looking for affordable travel options and domestic destinations over pricier international trips.

Such a shift has not only affected Airbnb’s ability to sustain that meteoric rise in the past, with the return to normality over pandemic restrictions causing demand to normalize. Regulatory constraints in key markets, notably those of short-term rentals, have also limited growth.

How High Will Airbnb Stock Go?

For now, the upside seems fairly muted for Airbnb stock with analysts consensus price target being $137.56 per share. If that comes to fruition, it represents just a few percentage points of upside opportunity.

Realistically, Airbnb is trading at a high price-to-earnings multiple now relative to future growth and that’s acting as an anchor holding the share price back at this time. In spite of the stunning gross margins, enormous cash flows and profitability, Airbnb will need to grow into its valuation. 

This may not be the most favorable entry point into Airbnb stock as its revenue pace is slowing down, it is facing government regulation issues, and the change of preferences of consumers amid economic fluctuations. Although the company is consistently innovating, short-term headwinds and valuation metrics suggest a better entry point later may offer a more promising reward to risk opportunity. It makes sense, as most of the analysts, 28 out of 42, agree it is a ‘Hold’ candidate.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.