Airbnb concluded 2023 with notable momentum as its revenue surged by 18%, reaching an impressive $9.9 billion. Despite prevailing macroeconomic uncertainties, the platform showcased the resilience of consumer spending. While Airbnb shares had previously lingered below their IPO price, they have rebounded, experiencing a 10% increase since entering the public markets on December 20, 2023 (as of March 5). Despite this positive trajectory, the stock remains 27% below its all-time high from February 2021.
Despite the past fluctuations, the current status of Airbnb’s stock should not dissuade investors from considering it as a compelling addition to their portfolios. From my perspective, Airbnb stands out as a top growth stock worthy of consideration.
Dominating the travel industry
As of the end of the previous year, Airbnb provided investors with a comprehensive look into the sheer magnitude of its expansive operation. Boasting a remarkable 5 million hosts and 7.7 million active listings globally, Airbnb’s scale is unparalleled in the travel and tourism industry. Operating in over 220 countries and regions, the platform has secured a dominant position.
Over the last 12 months, the platform witnessed a staggering 448 million nights and experiences booked, amounting to a gross booking value of $73 billion. Airbnb’s founders deserve significant recognition for their ability to revolutionize the entire industry in less than two decades.
Running an extensive two-sided marketplace grants Airbnb a potent network effect, constituting its economic moat. This effect enhances the platform’s service as more users join, providing travelers with increased options and hosts with a broader revenue-generating audience. This dynamic creates a self-reinforcing cycle.
Financially, Airbnb has demonstrated the profitability of its business model, with free cash flow reaching $3.8 billion in 2023, up from $3.4 billion the previous year. The company utilizes this cash to repurchase outstanding shares.
Moreover, Airbnb’s estimated $16 billion brand value is an additional contributor to its moat. Similar to peer companies in the gig economy like Uber, Airbnb has become synonymous with its service, transcending into a verb, which reflects its widespread consumer mindshare. Aggressive advertising becomes almost redundant.
Chief Business Officer Dave Stephenson emphasized on the Q4 2023 earnings call that “approximately 90% of our traffic remains direct or unpaid because the majority of Airbnb stays are unique to us.”
Considering these factors, I am confident that Airbnb will remain challenging to disrupt in the foreseeable future. While regulatory changes pose a potential risk, they also underscore the company’s dominance in the industry.
Modest valuation vs. high-octane growth
Due to the significant decline in its share price, Airbnb’s current valuation appears reasonable in my perspective. As of the latest data, the stock is trading at a forward price-to-earnings (P/E) ratio of 35.7. This represents a modest 17% premium compared to the 30.4 forward P/E multiple of the Nasdaq 100 Index.
Given the positive attributes of Airbnb, including its expansive global presence and powerful network effect, I believe investors should seize the opportunity presented by this reasonable valuation and acquire shares with confidence. The stock has the potential to continue delivering value to shareholders in the future.
According to the consensus analyst estimates on Wall Street, Airbnb is anticipated to achieve a compound annual revenue growth rate of 12% over the next three years. While this forecast indicates a slower pace compared to the past, considering Airbnb’s already extensive global reach, double-digit growth remains a noteworthy expectation for the foreseeable future.
In conclusion, Airbnb is a stock that holds significant potential and is worthy of inclusion in your investment portfolio.
