Airbnb: Low-Momentum Travel Contender Or Value Stock Worth Betting On Now?

Airbnb (NASDAQ:ABNB), the tech platform for booking alternative accommodation via non-hotel lodgings, would seem to be the perfect reopening stock. After a dreadful pandemic year during which people were locked down and forced to shelter-in-place, one would assume the company, and its shares, are now perfectly positioned to benefit from pent-up travel demand, with consumers more than ready to pack their bags and roam free.

Prior to the pandemic, the non-hotel type accommodations in which Airbnb specializes were already the fastest growing segment of the travel market. Happily for shareholders, in its latest earnings report, released in mid-May, Airbnb showed that its business is coming back fast.

The San Francisco-based company, which went public in December, reported $10.3 billion in gross bookings in the three months ended Mar. 31, a 52% jump from the year earlier period. Revenue gained 5% to $887 million.

“While conditions aren’t yet normal, they are improving, and we expect a travel rebound unlike anything we have seen before,” the company wrote in a letter to shareholders accompanying the results last month.

Investors in the tourism industry seem to be getting ready for that surge. According to a recent report in Bloomberg, an organized group of investors is building massive portfolios of houses to rent out on Airbnb. Dublin, Ohio-based ReAlpha—a real estate investment platform—is seeking to spend as much as $1.5 billion, including debt, to buy short-term rentals.

For Airbnb, the arrival of larger, more sophisticated investors could be a blessing, even if it contradicts the company’s efforts to market itself as a way for retail travelers to experience new places like local residents, the report says.

“Large investors represent a potential source of new listings, and may offer a product that appeals to people who like the comfortable uniformity of hotels.”

Stock Lacking Momentum/h2

Still, Airbnb stock lacks momentum. Shares are up just 3% this year, even as the benchmark NASDAQ gained about 12% over the same period. If one had invested in ABNB at its February peak—when it hit a record high of $219.94 per share—current losses amount to more than 30%. The stock closed on Friday at $149.67.

One major factor keeping investors away is the stock’s current valuation along with post-pandemic competition that's heating up. Online travel giants Booking Holdings (NASDAQ:BKNG) and Expedia Group (NASDAQ:EXPE), which owns Vrbo, have both launched aggressive marketing campaigns this year, in an effort to poach hosts from Airbnb.

To counter their moves, Airbnb has initiated the largest makeover ever of its app since it was founded, adding more than 100 new features that promise to streamline the process for guests and hosts alike.

Analysts at RBC Capital Markets in a recent note said that Airbnb’s valuation premium over competitors is justified, “given the differentiated brand, clear category leadership, share-gain potential and increasing optionality over time.”

Plus, the pandemic-sparked rise in household savings translates to “meaningful dry powder for booking trips,” the note said. RBC has an “outperform” rating on the stock with a price target of $170. The note adds:

“Our property-manager checks suggest share gains are on the horizon, and we think supply maturity is further away than investors realize.”

Bottom Line

Airbnb stock is trading considerably lower than its February peak despite clear signs that demand for its short-term rentals will be strong in the months ahead. This demand rebound will help this newly listed company reduce its losses and provide investors with a solid reason to buy its shares.

The timing seems right to take a position now in one of the market's biggest hospitality companies.

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Written By: Investing.com