Airbnb: Could a Recession Take Air Out of the Stock?

Shares of popular alternative accommodations platform Airbnb (ABNB) have already seen its stock deflate in price, plunging around 55% from its peak hit just last year. From COVID pandemic headwinds to fears of an economic downturn, the travel industry cannot seem to catch any break.

With a Federal Reserve raising rates to curb inflation, prospective travelers may find they’re short of discretionary income in the second half of 2022. Inflation has already weighed heavily on consumer wallets. As prices continue to rise while employment takes a few steps back, travel demand could be in for a milder repeat of the downturn experienced in 2020.

Further, the pandemic is still ongoing, with new variants that could strike as soon as autumn. Though booster shots and oral treatments could prevent another horrific lockdown in America, investors should be ready for anything. Indeed, the last two and a half years have been incredibly humbling for investors and analysts.

Though Airbnb stock seems cheap, COVID risks, I believe, are still discounted as the economy opens its doors even wider for the summer travel season. The summertime could be prosperous for travelers who have not met their pent-up travel demand since the pandemic began. Prices for a wide range of travel hotspots have been soaring, thanks in part to higher inflation, but mainly due to demand which could stay hot.

Looking ahead, Airbnb may enjoy a nice boost from robust demand for homestays and vacation rentals. That said, the winter that follows could weigh heavily, especially if evidence of a recession were to grow.

Now, Airbnb is a great company with an enviable lead in alternative accommodations. That said, the stock still trades at a lofty multiple, leaving it vulnerable as the market seeks to punish high-multiple tech stocks and economically-sensitive firms.

For Airbnb stock, such a punishment could act as a one-two punch to the chin. For now, I am bearish on ABNB stock, given rising recession risks.

On TipRanks, ABNB scores a 3 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to underperform the broader market.

Travel Demand Stays Robust, But Storm Clouds are Approaching

Many think a recession is inevitable at this juncture, but it isn’t. An economic slowdown could be in the cards if the Fed can accomplish its mission. In any case, Airbnb may have to brace itself as consumers become less willing to splurge.

In the latest quarter, gross bookings of $17.2 billion were in line with analyst estimates. There was evidence of broadening recovery in travel. And although the summer could bring forth even more relief for Airbnb, it’s worth noting that recent upbeat trends could reverse very quickly if consumer resilience fades, paving the way for a potential negative surprise in the second half.

Despite the gloomy recession talk, we’ve heard a lot of upbeat chatter about the state of the consumer. They’re still sitting on considerable savings, and job postings are surging. Indeed, it seems like the consumer is ready to spend, with employment staying robust.

However, as inflation creeps higher, savings accounts could erode quicker. Further, there have been many layoffs and hiring pauses in the tech sector. The second-half road certainly seems bumpier for the consumer. And it will be interesting to see how discretionary firms’ earnings hold up, as their shares sell off in anticipation of a waning economy.

Airbnb Stock: How Will it Fare as the Economy Slows?

Airbnb may be a discretionary firm, but with a wider range of stay options, it may have what it takes to hold its own compared to the big hotels. The company offers a greater number of value-conscious options that may be in greater demand as budget-constrained travelers look to meet up pent-up demand for travel despite fading economic conditions. In that regard, I view Airbnb as a better play than traditional hotel firms, which aren’t as price flexible.

Now, that doesn’t mean Airbnb is immune to further downside in the face of a recession. Rather, I think Airbnb could be quicker to rebound than its more traditional rivals come the next expansionary cycle.

Though I view the alternative accommodation industry as more favorable than hotels in the face of a recession, the valuation of Airbnb stock doesn’t seem to offer much of a margin of safety.

At writing, ABNB stock trades at 9.4 times sales and 80.4 times trailing earnings. That’s cheap historically speaking, but given recession storm clouds approaching, I’d argue the stock has a lot of room to fall before it’s considered a great value.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, ABNB stock comes in as a Moderate Buy. Out of 30 analyst ratings, there are 12 Buy recommendations, 17 Hold recommendations, and one Sell recommendation.

The average Airbnb price target is $168.07, implying an upside of 78.93%. Analyst price targets range from a low of $95 per share to a high of $250 per share.

The Bottom Line on Airbnb Stock

For Airbnb, many exciting long-term tailwinds are still in play. Most notably, millennial demand for experiences over materialistic goods.

As strong as consumers are today, it’s hard to imagine their purchasing power will hold up after another few quarters of this rampant inflation. Add the economic slowdown into the equation, and Airbnb stock still seems a tad pricy compared to the risks one will have to bear.

Read full Disclosure