Based purely on its robust year-to-date performance, Airbnb (NASDAQ:ABNB) – which operates an online marketplace for homestays and experiences – appears unquestionably as a promising enterprise. However, its inability to generate substantive returns following its public market debut means that investors need to think twice before booking Airbnb for their portfolios. I am neutral on ABNB stock.
ABNB Stock Fails to Ride the Revenge Travel Tailwind
Since the January opener, ABNB stock gained over 56%. From that perspective, it appears that the underlying business has been riding the revenge travel phenomenon. However, in the trailing one-year period, ABNB only moved up about 17%, and since its first public close in December 2020, shares are underwater by roughly 5%.
For those who invested near Airbnb’s initial public offering, the journey has been frustrating. In particular, the company appears to have failed to latch onto the extended revenge travel dynamic. Back when COVID-19 restrictions began fading away, sentiment for experiences surged relative to the acquisition of physical goods.
The reason was simple. While contactless e-commerce services boomed during the worst of the pandemic, government bodies imposed restrictions on non-essential activities. Once these restrictions were off the books, pent-up demand for previously denied experiences absolutely skyrocketed. Even with ongoing headwinds, such as inflation crimping purchasing power, the desire to travel overcame financial concerns.
Given the relatively carefree expenditure profile of vacationers, ABNB arguably should have bounced much higher than it has. That’s not to say that a 56% year-to-date performance is something to be scoffed at. However, Airbnb has made little progress since its market debut. Worse yet, even pent-up demand for travel experiences may eventually revert to the mean.
If so, that’s a mighty quandary for ABNB stock. If the business didn’t move broadly on such a powerful catalyst, it might fare poorly should that tailwind disappear.
Fundamentals Discourage, but the Smart Money is Split
On a wider level, deciphering the forward trajectory of ABNB stock is difficult because two countervailing forces clash. From one side, the fundamental backdrop doesn’t appear favorable for the broader consumer discretionary space. Nevertheless, options traders – or the smart money – appear split on the issue.
Discussing the bad news first, Federal Reserve Chair Jerome Powell recently pointed out that despite encouraging developments in facilitating disinflation, the acceleration of consumer prices remains too high. Therefore, additional rate hikes may be on the horizon. Naturally, rising borrowing costs would probably crimp consumer demand, especially because Americans are already deeply indebted.
Further, rate hikes also risk slowing the economy. In turn, such a framework may spark mass layoffs. Obviously, that would represent a poor outcome for ABNB stock.
However, TipRanks’ options chain reveals a heavily contested arena between bulls and bears. For example, the open interest for out-of-money (OTM) calls with an expiration date of January 19, 2024, came out to 20,901 contracts. To be sure, OTM puts for the same expiration date saw open interest reach 21,040 contracts. Still, neither puts nor calls feature a decisive numbers advantage.
Also, it’s interesting that the volatility smile (or graph showcasing the volatility of an options contract at various strike prices) demonstrates heightened activity on the extreme ends of the bull/bear spectrum. Specifically, the implied volatility (IV) of ABNB at the $90 strike price comes out to 0.62. On the other end, the IV of ABNB at the $200 strike price is 0.60.
In other words, traders are accounting for ABNB stock possibly dropping to $90 or rising to $200 with similar probabilities (from a current price near $132). Therefore, it’s difficult to say with certainty where ABNB may end up because it’s not leaning heavily in one direction or the other.
The Street Presents More Directional Frustrations
Those looking for clarity among big-time investors in the open market will be sorely disappointed. Early last month, Airbnb delivered a top- and bottom-line beat for its second quarter. Specifically, the company delivered earnings per share of 98 cents and revenue of $2.48 billion. In contrast, analysts expected EPS of 80 cents and sales of $2.42 billion.
However, TipRanks’ Vince Condarcuri mentioned that ABNB stock slipped following the earnings disclosure. And to be frank, shares still haven’t looked that great since then.
Is ABNB Stock Expected to Go Up?
Turning to Wall Street, ABNB stock has a Moderate Buy consensus rating based on 13 Buys, 15 Holds, and three Sell ratings. The average ABNB stock price target is $149.81, implying 12.9% upside potential.
The Takeaway
Regrettably, a broader analysis of Airbnb likely cannot provide a high-confidence forward trajectory of ABNB stock. On the one hand, rising consumer pressures impose doubt about discretionary spending. Still, on the flip side, options traders remain relatively split about ABNB’s direction. Part of that stems from travel sentiment remaining robust despite headwinds like inflation. Ultimately, though, with a convincing upside catalyst for Airbnb lacking, investors should consider waiting on the sidelines.
