Shares of popular alternative accommodations company Airbnb (NASDAQ:ABNB) are sitting down around 19% from their late-August peak despite recently clocking in record second-quarter earnings. Though the travel recovery could reverse course if that elusive recession makes an appearance over the next year, I view the latest dip in ABNB stock as more than buyable, given that many of the company’s distinct advantages are still fully intact. For this reason, I remain bullish on the stock.
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It’s going to be a turbulent ride for Airbnb going into 2024, but it’s one that may be worth riding for investors with strong stomachs. Indeed, investor expectations were elevated this earnings season. However, you can’t discount the company’s remarkable Q2 numbers and its path forward, which, I believe, could be brighter than expected.
Airbnb Clocks in a Great Quarter, but Shares Fall
For the latest quarter, net income rose 72% year-over-year to $650 million. Sure, the year-over-year comparables were easier this time around, but the firm also managed to top consensus estimates on the bottom line, with $0.98 in earnings per share (EPS), ahead of the $0.80 forecast. Revenues also came in a tad higher than expectations at nearly $2.5 billion (expectations were $2.42 billion), up 18%.
So, why the negative post-earnings reaction? It’s not hard to imagine that investors are increasingly nitpicky this time of year. Indeed, tech stocks are fresh off an incredible past-year relief rally. Even Nvidia (NASDAQ:NVDA), which blew away the numbers yet again, wasn’t able to generate a sustained round of applause from investors. When the price is too high, sometimes even the biggest beat and raise isn’t enough to move the needle higher.
In the case of Airbnb, its quarter was solid, but it wasn’t quite “Nvidia solid.” Further, investors may have seen a tiny bit of negatives in the results. Average daily rates (ADRs) — not to be mistaken with American depository receipts — came in quite muted (up 1%) for the quarter. Still, the company expected such rates would be lower for the quarter. In any case, I do think Airbnb stock is being unfairly punished by picky investors who may want more than a beat to reward a stock.
Airbnb Could Flex Its Strong Network in Pursuit of Greater Growth
Even if the travel recovery takes a breather, Airbnb has many growth levers it can pull to keep its long-term growth going strong. The company’s network is enviable and acts as a huge moat for the firm, keeping rival platforms (like Vrbo) mostly at bay.
Though competitive pressures from alternative accommodation newcomers could continue to mount, Airbnb’s flywheel seems tough to stop while it’s in motion. At the end of the day, Airbnb has more hosts, which draws in guests, which, in turn, draws in more hosts. Where else can you book a stay at a giant potato in the middle of Idaho (named the Big Idaho Potato Hotel)?
As the company pushes into the rental-apartment listing (subletting) service, Airbnb may be the one-stop-shop for any sort of stay over the short or medium term. With the subletting service, Airbnb stands to get a portion of the rent from various landlords who use its platform. It’s a wonderful business that could unlock a world of growth for Airbnb.
That said, there is a moral dilemma involved with the new service. Buying multiple properties for Airbnb-ing over extended periods of time stands to add to the housing affordability crisis. With that, Airbnb could find it under increased regulatory scrutiny at some point down the road.
For now, I don’t see any sort of Airbnb subletting ban happening anytime soon. Regardless, investors should be aware of the potential regulatory roadblocks that could appear in the future.
Apart from its new subletting platform, Airbnb could also get into the generative artificial intelligence (AI) game. The company could embrace AI to help it with everything from “concierge” services to customer support. Indeed, there are potential cost savings and sales growth to be had from investing in the revolutionary technology.
Is ABNB Stock a Buy, According to Analysts?
Turning to Wall Street, ABNB stock comes in as a Moderate Buy. Out of 31 analyst ratings, there are 13 Buys, 15 Holds, and three Sell recommendations. The average Airbnb stock price target is $149.81, implying upside potential of 19.3%. Analyst price targets range from a low of $105.00 per share to a high of $185.00 per share.
The Bottom Line on ABNB Stock
Airbnb stock is getting punished for what I believe is no good reason. The stock trades at 36.9 times trailing price-to-earnings, below the travel services industry average of 38.15.
For such a tech-savvy pioneer with a wide moat in its network, I’d argue the stock should trade at a fat premium to the peer group. Though the business of Airbnb may lie in a moral gray area for some, I think it’s hard to deny that the stock is looking cheap, given its unique competitive advantages.
