Does Airbnb (ABNB) Deserve a Place in Your Portfolio?

Airbnb Inc. (ABNB) is a unique online platform offering homestays and one-of-a-kind vacation experiences for its customers. The company’s business model is based on its proprietary marketplace connecting hosts and guests online or through mobile devices to book spaces and activities. Its listings include private rooms, entire homes, villas, treehouses, igloos, and other unique experiences.

Today, I will take a look at ABNB to see if the online booking platform deserves a place in your portfolio.

ABNB shares have risen 12.6% year-to-date (YTD), underperforming the S&P 500 which is up 18.1%.

Currently, 17 out of 36 analysts have a buy recommendation on ABNB, with an average price target of $169.19 per share, which is less than 3% away from where the stock is currently trading.

ABNB’ agile and adaptive business model enabled it to recover quickly from pandemic effects, but high market expectations might disappoint investors in the near term

Since the beginning of the pandemic, ABNB’s operations have been hit hard, as travel restrictions froze the company’s online bookings. The company has adapted to the effects of the pandemic by scaling down marketing and operational costs significantly and by focusing its activity on long-term stays in remote cities. 

These have helped the company to navigate through the pandemic and investors seem to have appreciated the effort. Investors have not dumped the stock, as there is a conviction that the company will benefit from the new travel trend. A trend that is being defined by the emergence of a more flexible work-life balance, that should lift travel and time spent in selected destinations.

If this new trend continues to gain traction in the future, market expectations for the online booking platform should remain high, however, as the COVID-19 situation remains highly uncertain ahead of the winter season.

The company beat analysts’ expectations in its latest quarterly earnings report, but the stock looks fairly valued

The company surprised the market in its latest 2Q2021 earnings release, posting an EPS of -$0.11 per share versus a consensus of -$0.43 per share and slightly beating the market’s revenue consensus by $64.7m.

Despite this performance, ABNB shares look fairly valued at the current price and for the moment there are no significant catalysts that should propel the share price to higher grounds.

In terms of financials, the platform has seen a sharp decrease in revenues in 2020, due to worldwide lockdowns that weighed upon the company’s top-line, down 29.7% year-on-year to $3.37b. ABNB’s net sales have, however, rebounded significantly in 2021, up 68.7% to $5.69b and its growth profile should continue to grow rapidly in the next two years, up 25.4% in 2022 to $7.14b.

On the other hand, ABNB is expected to remain unprofitable in 2021, posting a net loss of $789m. Nevertheless, analysts are expecting a turnaround in 2022, when the company should reach its break-even point, delivering a net income of $307m. If the company succeeds, this will be its first yearly profit and should bring tailwinds to ABNB’s stock price. 

More interestingly, the company has a healthy balance sheet, with a comfortable cash position of $6.9b in 2022, up 20.5% year-on-year. While this is positive from the company’s long-term growth prospects, ABNB’s net cash position has been built by issuing more shares and diluting its shareholders, which is a negative point for the online rental specialist. In front of that, the company has invested massively in 2021, doubling its CAPEX in 2021 to $861m.

The company’s valuation metrics are however stretched, with a 2022e EV/EBITDA of 61.5x and a 2022e P/E ratio of 347x. While the company is leading the online renting market, this high valuation might discourage investors from jumping on this stock.

Conclusion

Since its IPO in December 2020, ABNB shares are up about 20% and investors’ interest in the stock remains high. Though the company’s valuation is stretched, ABNB is well-positioned to benefit from new travel trends and has proved during the pandemic its ability to adapt to difficult market dynamics. Therefore, I do believe that ABNB deserves a place in investors’ portfolios, especially if the company is able to turn a profit next year.