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Airbnb went public at an interesting time – the markets were hot, and IPOs were soaring +100% on their first day… but Airbnb was getting crushed by Covid-19.
So, is Airbnb stock a buy? Let’s find out in this Airbnb Stock Analysis and Forecast.
What is Airbnb?
Airbnb is a technology platform that connects buyers and sellers of home and room rentals. The company uses AI – specifically machine and deep learning – to provide better rental information to users on both sides of the transaction.
Airbnb was founded in 2007 by Brian Chesky. It started from humble beginnings and used to rent out single air beds for $10 a night.
Today, the company is valued at $100+ billion and has facilitated nearly a billion guest arrivals.
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Airbnb Stock Investment Potential
#1. Decentralization of Everything
Covid-19 might have hurt Airbnb in the short-term, but it also accelerated and normalized the “Decentralization of Everything” – including where people choose to live and work.
The pandemic forced knowledge workers out of the office and into their homes. Then came the question: “If I can work remotely from 20 miles away, can I work remotely from 500 miles away?”
People and companies began to reconsider the necessity of major cities like New York and San Francisco – and they started to move.
Airbnb accommodated this demand during the pandemic and will continue to do so as homeownership becomes less permanent.
The idea of a stranger giving car rides was outrageous just a few years ago. Now, there are billions of Uber trips every year.
We believe this same transformational shift is occurring with homes. Airbnb created a new market of democratized hospitality and will be rewarded.
#2. Total Addressable Market
Airbnb believes it has a “serviceable addressable market” of $1.5 trillion and a total addressable market of $3.4 trillion. It currently operates in 200+ countries around the globe.
The company had just 54 million guests in 2020, yet there are billions of travelers worldwide. This represents a massive opportunity for Airbnb and its stock price.
Sure, companies often loosely define their “total addressable market”, and Airbnb has every excuse to do so, considering there are billions of homes worldwide.
But it’s an exciting metric for investors and indicates that the company is focused on more than just home rentals.
#3. Brand Awareness + Noun & Verb Status
Combining Airbnb’s total addressable market with its brand awareness makes this an exciting growth stock.
Airbnb is just years into disrupting the travel industry, and it’s already the default platform for bookings.
The company has also reached “noun & verb status”, – which validates and reinforces its network effects: “We got an Airbnb” or “We can Airbnb instead”.
Verb status, in addition to brands becoming larger than the product (Kleenex and tissues), is cherished territory amongst disruptor companies. Consider the following:
- “Venmo me.”
- “Google it.”
- “Let’s Uber.”
- “Want to Zoom?”
The company is enmeshed further into the culture each time it’s used as a verb.
#4. Digitization Proof
A large portion of software aims to reduce the role of humans in the physical world. Whether it’s automation or social media, AI and new technology are replacing industries and changing human behavior.
Airbnb is unique – it uses software to create more real-world interactions.
Yes, software is eating the world, but people are still going to need a place to live.
Side note: Facebook Groups became wildly popular, but the company became frustrated when it couldn’t monetize those off-platform interactions. We point this out to highlight the range of successful distribution platforms and provide some food for thought. These are completely different platforms with different goals.
#5. New Products and Offerings
Speaking of distribution, Airbnb will continue to add new products and offerings to its platform. It has the reach and brand awareness to launch new initiatives and seamlessly convert new and existing users.
For example, Airbnb could offer short-term office rentals or begin buying its own property. The company recently revealed that it is allocating tons of capital to new projects.
Distribution is everything in today’s economy, and Airbnb’s platform is suited to scale into new markets.
Airbnb Stock Moat
There’s going to be some overlap when we consider Airbnb’s investment potential and its moat. However, Airbnb’s differentiator is the combination of its brand awareness and distribution capabilities.
Airbnb Moat = Brand Awareness + Distribution
This enables the company to enter new markets and justify its lofty valuation.
Hosts and guests have an affinity for Airbnb that turned the company into a noun and a verb. Whoever thought a travel website would enter the vocabularies of boomers and Gen Z alike?
Airbnb Stock Analysis
Airbnb hasn’t had an earnings call yet because it’s only been public for a few months. However, we can look into some of its previous financials and projections.
- 2017: $2.56 billion
- 2018: $3.65 billion
- 2019: $4.81 billion
- 2020: $2.52 billion (Covid-19)
Airbnb’s sales are projected to grow 40% this year and 35% next year, per consensus revenues.
As previously mentioned, the company estimates its total addressable market at about $3.4 trillion. Here’s the breakdown:
- Short-term stays: $1.8 trillion
- Long-term stays: $210 billion
- Experiences: $1.4 trillion
Airbnb spends a ton of money on Sales and marketing, and product development that incorporates expensive AI like deep learning. We expect these costs to come down in the long term.
Airbnb Stock Competition
The barriers to the vacation rental space are low because it’s all about data and distribution. This is why Google has become one of Airbnb’s top competitors.
Let’s look at the complete roster:
- Google (GOOG)
- Expedia (EXPE)
- Booking Holdings Inc (BKNG)
- Trip.com (TCOM)
- Zillow (Z)
- TripAdvisor (TRIP)
- Baidu (BIDU)
- Trivago (TRVG)
Vrbo is Airbnb’s main competitor – the company is owned by Expedia and closely resembles the Airbnb model.
Expedia stock trades at more conservative levels (3x projected revenues vs 24x for ABNB), but its revenue is slowing (11% revenue growth in each year over the last three years prior to the pandemic vs 40% each year for ABNB).
Another sneaky stock to watch is Zillow – remember data and distribution.
Zillow and Airbnb benefit from being flexible and agile, but these characteristics set them on an inevitable collision course.
See: Tesla Stock Analysis
Airbnb Stock Bear Case
#1. Private Market Gains
The Airbnb IPO felt like the gains were being had in the private markets. Promising companies like Airbnb are staying private longer and going public at much higher valuations.
Airbnb opened at a valuation of around $100 billion – much of the company’s growth occurred when the public could not get a piece.
Bears might turn to Airbnb’s inconsistent profitability. While the company has turned a profit in previous quarters, some question why a capital-light business can’t make money.
Airbnb Brian Chesky said, “We think this model has really good, long-term inherent margins built into it.”
He listed several investments that were costly but crucial to Airbnb’s early success:
- Design a system of trust
- Build a payment system
- Invest in trust and safety
- Localize a product in 200+ countries
Chesky believes that the company has surpassed a key investment period and will generate consistent profits moving forward.
#3. Supply and Demand Imbalance
Airbnb CEO Brian Chesky says that the company will need millions of more hosts to meet its surging demand. This dilemma sparks an interesting question for Airbnb.
There’s no shortage of travelers willing to stay in verified rentals, but are enough people willing to open up their homes to strangers to sustain Airbnb’s growth?
Many believed this would be an obstacle for Uber, but a person’s home is far more intimate than their Toyota Camry. Airbnb has to overcome a much larger obstacle.
Having too much demand “sounds like one of them good problems “, but it’s nonetheless a puzzle Airbnb will have to solve.
Airbnb Stock Allocation in Your Portfolio
The optimal amount of ABNB stock in your portfolio depends on dozens of personal factors. However, these questions might help you arrive at the right allocation:
- Is Airbnb safe from disruption?
- Can Airbnb achieve consistent profitability?
- Is the platform “sticky” enough?
- Will Google’s platform, AI, capital, and ambition enable it to eat away at Airbnb’s travel market share?
- It’s already a $100 billion dollar company – is there more upside somewhere else?
- Can ABNB successfully enter new markets?
- Will a supply and demand imbalance between hosts and guests limit growth?
Bonus: Expert Coverage on ABNB Stock
Motley Fool co-founders Tom and David Gardner have been beating the market for decades. Their newsletter, Motley Fool Stock Advisor, has tripled the S&P 500 since its launch.
Airbnb is on their top ten stock picks for investors to buy right now – join the Motley Fool today to see the other nine stocks.
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Airbnb Stock Analysis FAQs
Did Airbnb go public?
Yes, Airbnb went public on December 10, 2020, and opened at $146 per share on its first day of trading, more than doubling the $68 price set for the IPO. Shares surged as much as 120% during Airbnb’s first day of public trading.
Is Airbnb a buy right now?
Airbnb is a buy right now if you’re willing to be a long-term shareholder. Many Wall Street analysts are bullish on Airbnb’s long-term potential but struggle to justify its current valuation. Others consider ABNB to be the perfect reopening stock for the short term. It’s difficult to answer “Is Airbnb a buy right now?” because each investor has different goals and time horizons.
What price target have analysts set for ABNB?
There’s a wide spectrum of analyst price targets for ABNB – some as low as $93 per share and others as high as $240. On March 9th, the stock crossed the average analyst 12-month target price of $180.43 per share.
Bottom Line: Airbnb Stock Forecast
Technology will forever update the “norms” we establish in society – why would hospitality be impervious to innovation?
Airbnb is changing the way we look at our homes – the financialization of everything is here.
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Sean Graytok owns shares of Airbnb, Inc.