The short-term rental platform Airbnb (NASDAQ:ABNB) has been getting more attention as Covid-19 restrictions are lifted. Since its initial public offering (IPO) in December 2020, ABNB stock is up about 2%, hovering around $150. Investors may be wondering if now is an opportune time to buy into the stock.
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Airbnb was founded in 2008. Since its early days, it has disrupted the travel industry and capitalized on emerging trends, such as increased travel in the pre-pandemic days and remote working during Covid-19.
When the company debuted on Wall Street last December, it became one of the most widely followed IPOs of 2020. The company set its opening price at $68 per share, but ABNB stock shares opened at $146 on the first day of trading. The stock picked up momentum and reached $174.97 on Dec. 22. After surging to its 52-week high of $219.94 in February, ABNB stock declined about 32% in the past three months.
If you are an investor with a two- to three-year horizon, you could consider buying the dips in ABNB stock, especially if the price falls below $140.
Airbnb Has A Resilient Business Model
The San Francisco, California-based Airbnb describes itself as a massive online alternative accommodation travel agency. Its popular platform connects hosts and guests online. The group currently has over 4 million hosts with 5.6 million active listings in more than 220 countries.
Airbnb’s resilient business model has contributed significantly to its success in recent years. Research suggests the company “has disrupted the hotel sector by facilitating trading of space between ordinary citizens.”
2020 was a dreadful year for most travel businesses, including Airbnb. Its revenue plunged 30%. However, as the vaccination rollout picked up speed in 2021 in the U.S. and other countries, the company made up for some of its pandemic losses.
Airbnb’s business model has benefited from the Covid-19 work-from-home trend. In its recent shareholder letter, management said, “Guests aren’t just traveling on Airbnb, they are living on Airbnb… An increasing number of guests are discovering that they do not need to be tethered to one location to live and work.” About 24% of bookings in the first quarter of 2021 were for stays of 28 nights or longer.
Remote work isn’t going away completely after the pandemic, which can give Airbnb another key competitive advantage over hotel chains. By offering homes with kitchens and workspaces, the company can serve its customers in a way most hotels can’t. Work-from-home demand could be a huge growth opportunity for the company in the long run.
The vacation aspect of their business model is also expected to see a boost in the coming months. Airbnb survey data suggests that most people are ready to travel, and over half prefer to use the platform to save money.
ABNB Stock and First Quarter Results
The company announced its Q1 results on May 13. Airbnb not only raised revenue above pre-pandemic levels, but also beat Wall Street analysts’ expectations.
Thanks to the vaccine rollout and some eased travel restrictions, the company’s top line grew by 5% year-over-year to $887 million. Bottom line remained in the red as Airbnb posted a $1.172 million net loss in the first quarter of this year, or a net loss per share of $1.95. By comparison, the Q1 2020 net loss was $341 million, or a $1.30 loss per share.
Airbnb’s Q1 shareholder letter stated, “While conditions aren’t yet normal, they are improving, and we expect a travel rebound unlike anything we have seen before. The strength of our Q1 results indicate the beginning of this travel rebound, and how well positioned we are to take advantage of it.” The company expects its second-quarter revenue to be significantly higher compared to Q2 2020.
ABNB shares are trading at 26x sales. This is a generous (or frothy) valuation even for a growth company. By comparison, the price-to-sales (P/S) ratio for Booking (NASDAQ:BKNG), one of the leaders in online travel industry, stands at 16.72x.
Therefore, in the short-run, ABNB stock is likely to remain volatile. Momentum players will potentially ride the waves in the shares as economic and travel headlines change in the summer months.
The Bottom Line on ABNB Stock
Thanks to its powerful brand, ABNB stock is poised to benefit from its competitive advantages in the travel industry. Many analysts have high expectations for the stock for the rest of 2021.
With a market capitalization of $91 billion, ABNB stock still has significant long-term upside potential. If you are not yet a shareholder, the recent pullback may be an opportunity to invest in the company. However, you should be ready to hold the shares for the long-term.
Potential investors could also consider buying an ETF that holds Airbnb stock, such as ETFMG Travel Tech ETF (NYSEARCA:AWAY) or Schwab US Mid Cap ETF (NYSEARCA:SCHM).
Finally, investors looking for a newly listed company with growth opportunities may consider the First Trust US Equity Opportunities ETF (NYSEARCA:FPX), the Renaissance IPO ETF (NYSEARCA:IPO), or the First Trust IPOX Europe Equity Opportunities ETF (NASDAQ:FPXE).
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
