The death cross – Airbnb (ABNB) just posted it, and the market has responded. Nevertheless, options traders appear to be bidding up ABNB stock in the derivatives arena. While contrarianism is always a risky move, the implied intelligence in this trade makes it rather compelling for intrepid speculators. Therefore, I am cautiously bullish on the lodging marketplace provider.
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ABNB Stock Doesn’t Look Pleasant in the Slightest
At first glance, investors coming upon the price chart of ABNB stock would be tempted to run in the opposite direction. Last week, shares of the lodging marketplace specialist dropped 7%. In the trailing month, they fell more than 24%, and since the beginning of the year, Airbnb has fallen by over 14%.
More ominously, ABNB stock recently printed a death cross in the technical chart. This event materializes when the shorter moving average (the 50-day moving average in this case) dips below the long-term average (the 200 DMA). The common interpretation is that the bears have taken control.
For the bulls, the matter stinks because sentiment started off strongly this year. However, the wheels began to fall off last month. Earlier this month, Airbnb’s second-quarter earnings report gave the market the excuse to dump ABNB stock. As TipRanks reporter Vince Condarcuri mentioned, earnings per share landed at 86 cents, missing the consensus view of 91 cents.
On the other end, revenue jumped 10.9% on a year-over-year basis to $2.75 billion. Here, the figure beat analysts’ expectations of nearly $2.74 billion. Condarcuri stated that the results “were driven by a 9% growth in Nights and Experiences Booked and a 2.1% increase in the Average Daily Rate.”
So, why did ABNB stock struggle as badly as it did? As TipRanks reporter Radhika Saraogi explained, management delivered soft guidance for the current quarter (Q3). Concerns about possible slowing travel demand in the U.S. contributed to overall anxieties.
Saraogi noted that analysts from Needham and Robert W. Baird maintained their Hold ratings on ABNB stock. While that’s not an outright Sell recommendation, let’s be honest: very few analysts give such recommendations.
The Wall Street Journal pointed out years ago that analysts prefer to maintain diplomacy in their broadcasted opinions. Essentially, by giving directly severe assessments, such experts risk losing access to key relationships. So, when ABNB stock is given a Hold view, retail investors have leeway to read between the lines.
Now, even if investors were to look at the matter as a glass half full, the reality is that the market is the ultimate arbiter. It clearly gave up on ABNB stock. Still, that’s where options traders are apparently buying the blood on the streets.
Options Traders Take the Opposite Approach
Despite the ugliness in the charts, options traders seem to be bidding up ABNB stock options. Specifically, options flow data – which focuses exclusively on large transactions likely placed by institutional or professional traders – reveals that net trade sentiment stands at over $2.84 million in favor of the bulls.
Net trade sentiment is calculated by totaling all premiums with bullish and bearish sentiment. Last Friday, premiums associated with bullish options stood at $6.6 million, while premiums tied to bearish options landed at $-3.76 million. That’s quite a gap, suggesting strong positive sentiment among options traders.
What’s more, on Thursday, net trade sentiment stood at $22.54 million in favor of the bulls. This isn’t just a one-off moment of speculation. Instead, the optimists appear to genuinely believe that a turnaround is coming.
Just as well, TipRanks’ unusual options activity screener confirms the lopsided sentiment favoring the long side of the trade. On the Friday session, TipRanks recorded 19 bearish sentiment options trades. However, bullish traders clocked in at 29 transactions.
Put it all together, and there’s a compelling reason to take the counterintuitive bullish trade on ABNB stock. Yes, the open market signals pain and danger. However, the derivatives market – as TipRanks points out – represents the sentiment of the smart money.
If the smart money is sniffing out an opportunity, it’s worthwhile to at least consider it.
The Fundamental Justification
Still, retail investors might be wondering if there is a fundamental justification for buying the pain in ABNB stock. The answer also appears to be yes.
True, investors gave up on Airbnb stock because of the underlying weak guidance amid growing concerns about travel demand. However, just last month, CNBC published a story stating that air travel demand is breaking records. If that’s the case, there doesn’t seem to be a need to panic about the travel sector.
Keeping that in mind, ABNB stock currently trades at 7.2x trailing-year revenue. However, in the past year, Airbnb traded at a premium to sales of 10.09x. In other words, the market had zero issues running a double-digit multiple, in large part because of the aforementioned strong travel demand.
So, it appears that the smart money is calling the public money’s bluff. That presents a tempting proposition to trade alongside the expert contrarians.
Is Airbnb Stock a Buy, According to Analysts?
Turning to Wall Street, ABNB stock has a Hold consensus rating based on eight Buys, 20 Holds, and five Sell ratings. The average ABNB stock price target is $132.77, implying 13.6% upside potential.
The Takeaway: ABNB Stock Stuck in a Sentiment Crossfire
Perhaps the best way to describe Airbnb at this present juncture is that it’s caught in a sentiment crossfire. In the open market, the army of public money has exited ABNB stock due largely to soft forward guidance. On the other hand, the smart money interprets the fallout as a buying opportunity. For those who want to side with the latter, they have the comfort of a fundamentally sound thesis.
