Since its inception, vacation rental leader Airbnb (ABNB) has stood out from traditional hotels. The company provides a platform for hosts to rent out homes or rooms to travelers, which appeals to those looking for unique travel experiences.
Despite the massive hit to the travel industry caused by the global pandemic, Airbnb has recovered well in the post-pandemic travel market. Despite rising inflation and geopolitical tensions, travel demand continues to increase.
So far this year, ABNB stock has dipped by 2.8%, trailing the S&P 500 Index's ($SPX) gain of 25.8%. Nonetheless, based on its high price estimate of $195, Wall Street expects a 47.6% increase over the next year.
With the holiday season underway, Airbnb reported another strong quarter. Let's see if Airbnb stock is currently a good buy.
Airbnb Adapts to Post-Pandemic Trends
Airbnb's financials have responded positively to the ongoing demand for "alternative accommodations" such as entire homes and unique stays, giving the company an advantage over traditional hotel chains. Furthermore, it provides stays in unusual and offbeat locations where traditional hotels do not typically operate. This gives Airbnb a competitive edge.
Travel has increased following the pandemic, with more people looking for unique and flexible accommodations. Airbnb's diverse listing portfolio, which includes everything from luxury villas to remote cabins, puts it in a strong market position. Its solid third-quarter results reflect this.
Total revenue increased by 10% to $3.7 billion, led by growth of nights stayed on the platform. The company earned a net income of $1.4 billion in the quarter. Nights and Experiences Booked increased by 8% from the previous year's quarter, with growth across all regions.
Airbnb continues to benefit from the remote work trend, as employees now have the flexibility to travel and work from diverse locations. Extended stays, which have seen increased demand, are now a significant part of Airbnb's business, contributing to revenue and growth. The company had 8 million active listings in the quarter. Airbnb now wants to make hosting equally popular as traveling.
With this in mind, Airbnb introduced a brand-new program called Co-Host Network to identify the top local hosts and assist with "listing setup to managing bookings and talking with guests."
Over the last three years, Airbnb has introduced 535 new features and enhancements to enhance its offerings for both hosts and guests. The company has rolled out more than 50 upgrades in 2024 alone.
Additionally, the business keeps growing internationally, breaking into new markets and collaborating with regional hosts to broaden its reach. Management also stated that Airbnb plans to expand "beyond accommodations" and that more details on this will be revealed in 2025.
The company keeps a healthy free cash flow position, allowing it to control operating costs and reinvest in growth initiatives such as marketing and new product development. Free cash flow totaled $1.1 billion in Q3. The company's balance sheet showed $6.8 billion in cash and cash equivalents at the end of the third quarter.
While travel demand continues to surge, a few countries and regions might be affected by geopolitical events. Furthermore, Airbnb's revenue and demand can be seasonal, which can lead to fluctuations in earnings.
Analysts forecast Airbnb’s revenue to increase by 11.4%, but earnings to dip by 44.9%, in 2024. Earnings are expected to increase by 10.8% in 2025, alongside 10.5% growth in revenue. Airbnb stock is valued at seven times forward 2025 sales, and 30 times forward 2025 earnings.
What Does Wall Street Say About Airbnb Stock?
Overall, on Wall Street, Airbnb stock is a “hold.” However, some analysts are skeptical about Airbnb stock due to its valuation. Recently, Phillip Securities analyst Paul Chew downgraded the stock to a “sell,” writing that the stock is overvalued compared to its expected earnings growth rate.
On the other hand, Susquehanna analyst Shyam Patil reiterated his “buy” rating for ABNB stock, noting the company’s “strong market position and growth potential.” Patil believes the growth in nights and experiences booked in Q3 reflects a healthy demand trajectory, and has a price target of $160 for ABNB.
Separately, Bank of America Securities and Evercore ISI analysts maintained their “hold” rating on the stock.
Out of the 38 analysts covering the stock, nine rate it a “strong buy,” one suggests a “moderate buy,” 23 rate it a “hold,” one suggests a “moderate sell,” and four rate it a “strong sell.” The average target price of $137.32 is 4.1% above current levels. The high price estimate of $195 suggest an upside potential of 47.6% over the next 12 months.
The Bottom Line on ABNB Stock
Airbnb's stock represents a unique combination of technology, travel, and real estate, making it an interesting long-term investment. However, stocks of growing companies are also volatile, and may take time to reach their full potential.
Airbnb’s growth drivers - such as increased travel demand, remote work, and global expansion - position it well for potential long-term success. It can be a good addition to a diversified portfolio of stable stocks.
