The perfect storm of higher rates, recession fears, negative headlines over anecdotal experiences, and more competition (think Vrbo) in the alt-stay space have weighed heavily on Airbnb (NASDAQ:ABNB) stock. Despite the recent relief rally off last year’s all-time lows, I still think it’s likely too early to be a buyer of the dip.
The alternative accommodations pioneer has been under pressure for nearly two years now, and with no timely catalysts in sight, Airbnb stock may have a tough time turning the tides and sustaining a rally back to 2021’s heights. Further, the negative points outlined previously could easily worsen as macro headwinds intensify. For these reasons, I am slightly bearish on ABNB, with the stock now well north of $100.
Airbnb’s Wide Moat Could Narrow in a Post-Recession Environment
Like most industry pioneers, Airbnb has a reasonably sizable moat surrounding its share of the alternative accommodations market. For a while, it seemed like the company had a brand and network so strong that it deserved its own verb. Still, as the travel recovery clashes with a potential recession, it’s hard to tell what’s to happen with the demand for Airbnb-ing.
Even with its powerful network advantages, the big hotel chains, like Expedia (NYSE:EXPE) and Booking Holdings (NASDAQ:BKNG), will be eager to fire back at Airbnb with vacation rental platforms of their own.
The big chains have deep enough pockets to potentially disrupt its disruptors. Though it will be very difficult for Airbnb’s larger rivals to even the playing field, one has the think that continued advancements of its peers would chip away at Airbnb’s moat.
Making matters worse, a recent short report into poor Airbnb customer experiences could weigh on brand affinity and provide rivals a chance to nibble away at Airbnb’s user base.
Airbnb Stock Takes a Hit Following Short Report
Shares of Airbnb fell as much as 6.6% recently on news of a report outlining negative customer experiences. The report issued by The Bear Cave (a bearish-style newsletter that focuses on highlighting the problems of certain stocks/companies) earlier this month noted various incidents that would make me think twice before booking my next Airbnb stay. Such concerns include last-minute cancellations, questionable cleaning requirements, and inappropriate use of hidden cameras.
Any one of these concerns would scare almost anyone to opt for the pricier hotel over an Airbnb. Though it’s difficult to gauge the occurrence of such risks, I do view the short report as a tad overblown. Remember, short-sellers have their own motives in mind and can make things seem scarier or more prevalent than they actually are.
Undoubtedly, last-minute cancellations can be very disruptive to one’s travel plans. They can introduce a lot of stress to any relaxing vacation and bring forth considerable added costs. Although Airbnb has taken steps to improve the way it handles hosts who frequently abuse cancellations, the company could afford to offer customers an even greater magnitude of assurance that their trip won’t take too sharp of a sudden turn.
And in that regard, Airbnb is on the right track. Last August, the company hiked its maximum penalty on last-minute cancelations from $100 to $1,000. As Airbnb tilts the tables in favor of renters, it must also ensure things are fair for hosts. Though there’s still room for improvement, I am a fan of the steps taken by Airbnb to address one of the biggest fears of prospective renters.
In terms of stays, it’s hard to top the assurance provided by hotels. Book a room, and odds are you won’t be canceled on and have your plans completely derailed. In any case, Airbnb seems to be proactively improving on one of the biggest shortcomings of alternative accommodations.
As for questionable cleaning practices, abuses by renters, or other issues, Airbnb may have to get creative with its proposed solutions. Indeed, the company has an opportunity to make use of artificial intelligence (which can provide enhanced background checks, for example) to help it smoothen out any issues between guests and hosts.
Is ABNB Stock a Buy, According to Analysts?
Turning to Wall Street, ABNB stock comes in as a Moderate Buy. Out of 32 analyst ratings, there are 15 Buys, 14 Holds, and three Sells. The average Airbnb stock price target is $142.07, implying upside potential of 23.6%. Analyst price targets range from a low of $98.00 per share to a high of $185.00 per share.
The Bottom Line on Airbnb Stock
After a turbulent 2022 for the tech scene, Airbnb stock found its way to new all-time lows at around $82 per share. Though shares have been steadily climbing back in recent weeks, it may be too soon to get back in the water, with a short-seller on its back and a still-lofty valuation. At 8.7x trailing price-to-sales (P/S), ABNB stock commands a big premium to the leisure and recreation industry average of 5.7x.
