In 2022’s first half, Airbnb (ABNB) seemed like a business that was particularly vulnerable to rising inflation. However, Airbnb’s CEO remains optimistic despite a challenging macroeconomic backdrop and even investors’ concerns that the U.S. may be in a recession. Furthermore, there’s no shortage of financial data, including Airbnb’s profit growth, to quell the shareholders’ concerns. I am bullish on Airbnb stock.
Airbnb provides a platform for hosts to get paid to offer temporary lodging at their homes and for traveling guests to find hosts. The company already has had to deal with the onset of COVID-19, which certainly had a negative impact on travel activity. This isn’t just an assumption, as Airbnb lost 80% of its business in eight weeks when the pandemic struck.
COVID-19 is still an issue, no doubt, but the inflation headwind is likely top-of-mind for investors in 2022. Granted, annualized U.S. Consumer Price Index growth declined from 9.1% in June to 8.5% in July. Nonetheless, inflation remains elevated, and this factor could conceivably inhibit Airbnb’s ability to generate profits.
There’s no need to panic-sell Airbnb stock, however, even with these concerns. Economic conditions will vary over time, but as we’ll discover, Airbnb has demonstrated its resilience with outstanding quarterly results.
Airbnb’s CEO Sees Company as Adaptable Even During a Recession
It’s undeniable that Airbnb must be under enormous pressure to deliver results when inflation and economic uncertainty are in the headlines. However, CEO Brian Chesky clearly isn’t too worried as he sees the company as well-positioned to ride out any recession. Economists can spend all day and night debating whether the U.S. is technically in a recession. One benchmark measure of a recession is two consecutive quarters of negative GDP growth, and the U.S. has met that criterion.
On the other hand, July’s 3.5% unemployment rate doesn’t make the current conditions feel like a typical recession.
Nevertheless, Airbnb’s home-rental platform is, in Chesky’s words, “incredibly adaptable.” Indeed, the CEO’s argument in favor of Airbnb as recession-resistant holds weight. He contends, “Airbnb is a very affordable alternative to hotels for a lot of people. That’s why I think a lot of people are going to turn to Airbnb in this economic environment.”
This line of thinking makes perfect sense. Renters can make some extra cash during a recession if they have extra room in their homes. At the same time, travelers can bypass high hotel-stay rates simply by logging on to their Airbnb app.
Chesky also pointed out that Airbnb hasn’t “had to adjust our hiring plans.” This is a good sign during a year when so many businesses have laid off workers and/or implemented a hiring freeze. It’s yet another signal to prospective Airbnb investors that they’ll be involved with an exceptionally solid company.
An Analyst is Also Optimistic about Airbnb Stock
Now, you might object that Chesky isn’t an objective source of information. After all, it’s part of his job to be a hype man for Airbnb. Fair enough, but Chesky’s not the only person with an optimistic outlook on Airbnb’s future prospects. Indeed, Oppenheimer analyst Jed Kelly also seems to view the company as able to withstand a recession.
Kelly harkens back to the financial crisis of 2008-09 when Airbnb was a young business. You might assume that Airbnb lost practically all of its business during this stressful time. Yet, Kelly observes that Airbnb’s “booking grew with Room Nights.” Indeed, Room Nights still grew over 50% while most other businesses struggled. Although growth won’t be as strong since ABNB is much larger now, it does provide clues as to what to expect.
Furthermore, Kelly makes an excellent point about consumer behavior during recessionary conditions. “Most people in a recession comparison shop, right?” he asks, and there’s no doubt about that. Kelly concludes that we might expect recession-pressured shoppers to stick with what’s familiar and “go to Airbnb because they have such a strong brand name.”
With this in mind, Kelly adds that during the third quarter, Airbnb expects to report 49% EBITDA margins. That’s already impressive, but Kelly’s evidently bracing for expansion, forecasting Airbnb’s “margins expanding probably 50 to 100 basis points next year.”
Both Kelly and Chesky have access to plenty of data points if they need to back up their confidence in Airbnb. The company’s Q2 2022 revenue grew 58% year-over-year to $2.1 billion, and Airbnb just recorded its most profitable Q2 ever with $379 million in net income.
Looking at it from a different angle, Airbnb earned $0.56 per share in the second quarter, beating the analyst consensus estimate of $0.45 per share.
There was also this tidbit in the earnings press release: Airbnb announced a $2 billion share repurchase program. This, according to the company, is indicative of Airbnb’s confidence in its “long-term growth and profitability.”
What is the Target Price for ABNB Stock?
Turning to Wall Street, ABNB has a Moderate Buy consensus rating based on 13 Buys, 17 Holds, and one Sell assigned in the past three months. The average Airbnb price target is $134.43, implying 6.7% upside potential.
Conclusion: Investors Might Want to Consider ABNB Stock
Airbnb didn’t have to alter its hiring plans. The company intends to buy back its own shares. Plus, Airbnb just reported impressive top and bottom-line financial results. In addition, the optimism of Airbnb’s CEO is actually based on hard data and reasonable forecasts. Chesky isn’t just a pitchman; he’s leading Airbnb through America’s economic challenges. Knowing this, traders might consider holding a few shares of Airbnb stock as an unexpected recession-resistant investment.
