Will Airbnb Stock Recover?

Will Airbnb Stock Recover? While the COVID-19 pandemic closed down the global economy almost overnight back in March 2020, there would be few industries as hard hit as those in the hospitality and tourism sector.

Typical measures implemented to fight the spread of the coronavirus – including social distancing, community lockdowns, and stay-at-home orders – could almost have been deliberately designed to inflict maximal distress on restaurants, bars, cinemas, as well as holiday destinations such as hotels, cruise ships and rental apartments.

It’s not surprising then that Airbnb (ABNB), one of the world’s largest online marketplaces for vacation rentals and lodging, was so severely affected by the close-down in its initial stages.

The company was facing an existential crisis. In fact, during the early months of the pandemic, Airbnb had more cancelations than it had rentals. Gross bookings dropped by 72%, and the firm seemed to be heading into a nightmare of catastrophic proportions.

As it happened, Airbnb actually got to work to mitigate the worst potential outcomes, with management putting forth a plan to salvage what little they could, and to add value to the customers they were still serving.

But even so, 2020 was a poor year. ABNB revenues dropped by 30%, and things were looking bleak.

What the company really needed coming out of the crisis was a turnaround event at the start of 2021. And that’s just what it got.

A bumper quarter

Airbnb’s first set of financial results in 2021 came out in mid-May, and they were the perfect antidote to a terrible previous twelve months.

The firm’s gross booking value was up 75% from the last quarter at $10.3 billion, as were its Nights and Experiences booked at 64.4 million – a year-on-year increase of 52% and 13% respectively. Average daily rates also grew by 25% quarter-on-quarter to $159.82. 

It should be noted that nights booked in Q1 were higher than at any time in 2020, either before or after the onset of the COVID crisis. Gross booking value wasn’t just higher than in 2020, it was higher than in any quarter in 2019 too. 

And again with the average daily rate – higher than any segment in either 2020 or 2019. The company believes that a trend towards bookings in non-urban areas, with entire houses, and more travel by families and groups helped drive up the average daily rate through higher listing prices, as well as evidence that hosts were upping their rents in areas with greater guest demand.

Revenue grew in the first quarter too, mainly due to increased daily rates and fewer cancelations than in previous quarters. The firm pulled in a total revenue of $887 million, up 5% year-on-year.

However, it wasn’t all good news. Airbnb reported a net loss over the quarter of $1.17 billion, although loss related to the payoff of debt and impairment related to working space accounted for much of this. 

Is Airbnb Stock A Good Buy?

A poor valuation…

The company is currently trading at high multiples compared to its peers in the industry. For instance, Airbnb’s forward price-to-sales ratio is 15.27, whereas TripAdvisor’s is just 6.21 – and Expedia’s is even lower at 3.01. Factor in that ABNB isn’t even profitable yet, and these numbers need some explaining.

As it happens, though, there’s a couple of good reasons for Airbnb’s high premium. First, the firm, unlike its rivals, has a huge – perhaps, unique – growth opportunity due to the fact that the company is almost wholly concerned with private landlords rather than professional hotels and resorts. And as the private sector has more potential space to grow into, the market is willing to price in this premium.

Additionally, the business is a disruptor; and if anyone’s going to disrupt anyone else, it’s going to be Airbnb taking ground from the big hotel chains rather than the other way round. Airbnb is more technologically sound than its competitors, and its brand is second-to-none.

…but an excellent buy point?

Airbnb has only been publicly listed since December last year, but already its share price is trading at close to record lows.

It wasn’t always like this; the stock had a great run up after its IPO, reaching highs of just under $220 in earlier this year. However, the company has seen its price drop to the $135 mark, and investors have to ask whether now is as good as any other time to buy in.

One catalyst that might offer some hope of positive price action will be the firm’s Q2 earnings results this coming August. Given the excellent figures this time round, it’s likely they’ll be even better in a couple of months, given that the year-on-year comparisons will be against the quarter when the damage wrought by the coronavirus first kicked-in.

The firm had to refund bookings en masse during Q2 2020, so there should be some high growth metrics if the business maintains it bookings trends shown in Q1 2021.

Airbnb’s depressed stock price right now – and the lure of another good quarter to come – is just the golden ticket that most investors are looking for. 

Will Airbnb Stock Recover?

People are now ready to start traveling again, and Airbnb is there to help them. Confidence is high that the pandemic is coming to an end, and bookings are flooding the market.

Furthermore, with its latest quarterly results, Airbnb has shown that its business is viable in a post-COVID world.

Investors can be sure that the company has weathered the worst of the storm – and, if things go to plan, it should soon turn a profit not just for itself but also its shareholders too.

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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.