1 Stock That Is the Amazon of Travel

Amazon’s successful domination of the eCommerce industry is one of the great business stories of the last 25 years. Using technology and innovative thinking, the company all but cornered a massively profitable emerging market, going on to becoming one of the world’s largest business concerns.
Today, investors are after the “next Amazon.” While comparisons with Amazon are perhaps too common, there is one company that has incredibly strong parallels to Amazon in the travel industry. This company, unsurprisingly, is Airbnb. Here’s what you need to know about the future potential of Airbnb (ABNB) and how it could become the Amazon (AMZN) of travel.

Why Airbnb Could Be the Amazon of the Travel Industry

The first and most obvious parallel between Amazon and Airbnb is the fact that Airbnb has leveraged technology to approach its industry in an innovative new way. By doing this, Airbnb has acted as a disruptive force in an industry dominated by legacy hotel chains.
Furthermore, Airbnb has the potential to integrate other parts of the travel ecosystem into its business model in the future. Restaurant recommendations and reservations, travel experiences and other aspects of vacation planning may all one day have a place in Airbnb’s service portfolio.
In effect, this would allow Airbnb to become an end-to-end solution for all aspects of travel. By rolling the heretofore disjointed travel booking process into one simple customer experience, Airbnb would almost certainly become a dominant force in the industry. This one-stop approach to travel would be revolutionary, achieving something very similar to what Amazon did in the world of eCommerce.

Travel, Airport, Boarding Pass, Boarding, Luggage

Source: Pixabay

Airbnb is also like Amazon in that it allows others to profit from its platform using their own properties. This allows it to operate in every imaginable real estate market without ever having to own its own properties. This fact accounts for Airbnb’s low prices when compared against hotels, in turn giving it a degree of inflation resistance.
Together, these factors give Airbnb opportunities in the travel industry that closely mirror Amazon’s success in eCommerce. By leveraging technology, bringing more options under one roof and creating a single, seamless customer experience, Airbnb could one day be the go-to choice for travel.

How Much Potential Does Airbnb Have?

In the short run, Airbnb is a promising stock for investors seeking strong returns from high-growth companies. Analyst forecasts give ABNB stock a 12-month target price of $202.50, up 29.8 percent from current levels. On its own, this fact might be enough to rate Airbnb as a buy.
Taking into account the potential for long-term expansion, though, it’s clear that Airbnb is a stock worth buying and holding. The company has experienced a truly excellent post-pandemic recovery, with revenues rising by 77 percent in 2021 and dropping 30 percent in 2020. These figures strongly suggest that Airbnb will emerge from COVID-19 in even better shape than it was before. Going forward, expect to see continued high levels of growth for some time.

It’s hard to say how large the market for travel experiences and other add-ons could be for Airbnb. Conservatively, however, it’s safe to say that it could open up a market worth multiple trillions of dollars for the company. This new direction could give Airbnb room to continue growing for years to come and alleviate concerns that the company might already have reached its logical slowing point.
Airbnb is also poised to take advantage of changes in the travel market itself. As remote work has become more common, consumers are taking advantage of it to travel more frequently. Thanks to Airbnb’s substantial price advantage over hotels in many markets, these traveling workers are increasingly turning to short-term rentals hosted on the company’s platform.
Together, these factors point to considerable future growth for Airbnb. Growth does not appear to have slowed going into 2022, with Airbnb already announcing a Q1 earnings beat. If the company can maintain its current trajectory, investors will almost certainly be rewarded with strong long-term returns.
Continuing innovation, ample room to grow and consumer demand that is shifting to almost perfectly meet Airbnb make the company extremely attractive as an investment.

Warning Signs

The largest risk factor for Airbnb right now comes in the form of regulation aimed at reducing the number of properties that are eligible for short-term rental agreements.
Attempts to ban short-term rentals have been made in many states and cities across the US. Though not always successful, these efforts could point to broader regulatory challenges for the company as communities resist its incredibly successful business model.
Valuation is another potential problem for Airbnb. With a price-to-book ratio of 21.25 and a P/E ratio of 110.43, there’s no denying that Airbnb is a pricey stock. If Airbnb doesn’t continue on its growth trajectory, its valuation could become a serious problem.

Is Airbnb a Buy Right Now?

All told, the benefits of Airbnb seem to considerably outweigh the risks at the moment. Airbnb’s gradual move from purely being a short-term rental platform toward being a one-stop-shop for everything related to travel could produce immense growth and allow the company to effectively become the Amazon of the consumer travel industry. Given this long-term potential and positive short-term price targets, there’s a great deal to like about Airbnb at the moment.
With that said, there obviously are some risks. Regulation could slightly affect the company, but there’s a good chance that its effects have been overstated. So far, attempts to dissuade short-term rentals don’t appear to be weighing on the company’s revenues. While more comprehensive future efforts could present problems for the company, it seems unlikely that regulation will kill Airbnb.
A much more realistic concern for Airbnb investors is the current price of the stock. Although the company is clearly in the midst of a growth spurt, its valuation metrics are concerning. These metrics are acceptable, provided the company continues to grow rapidly.
If growth slows due to reductions in consumer spending, however, that story could change. So far, consumers have kept their travel budgets high, even as inflation erodes their purchasing power. The question for Airbnb is whether that trend can continue until inflationary pressures begin to ease.
In spite of these risks, the potential long-term upside of Airbnb is still quite appealing. The company is in an excellent position to create an entirely new approach to planning and booking travel. While investors should be aware of the risks and willing to accept the potential pitfalls of excessively high valuation, Airbnb looks like a good stock to add to a high-growth portfolio at the moment.

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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.