We have wondered for some time whether Airbnb (ABNB) can maintain its lofty valuation. It would seem the Delta variant of the coronavirus has caused the market to reassess Airbnb’s position as a re-opening play. Its stock has fallen 23% over the past six months, compared to 14% rise for the S&P 500 index. But is that decline justified?
The company, which pioneered the home-sharing market, will report second quarter fiscal 2021 earnings results after the closing bell Thursday. Airbnb shares have lost more than 32% since reaching a 52-week high of $220 in February. Despite its recent struggles, Airbnb shares are still more than 120% above their IPO price of $68. Plus, during that six-month span, the shares have also outperformed the likes of Expedia (EXPE) and TripAdvisor (TRIP).
Does that mean there’s more room to fall? Not according to BTIG analyst Jake Fuller. Citing the company’s attractive business model and competitive strengths that are considered superior to its rivals, Fuller recently upgraded ABNB stock to Buy from Neutral. Assigning a price target of $170 to the stock which is slightly above the Street target of $168, Fuller noted the company’s ability to better withstand the pandemic uncertainty if restrictions increase.
While its valuation is seen as challenging, Fuller says Airbnb should command an increased multiple based on its status as a best-in-breed digital service name, particularly when compared to traditional chains such as Hyatt Hotels (H), Hilton Hotels (HLT) and Marriott (MAR). To confirm Airbnb’s perceived value, on Thursday investors will want to hear revenue growth assurances and upside guidance for the current quarter and rest of the year.
For the three months that ended June, Wall Street analysts expect the San Francisco, Calif.-based company to lose 48 cents per share on revenue of $1.23 billion. This compares to the previous quarter when it lost $1.95 per share on revenue of $886.94 million. For the full year, ending December, the loss is projected to be $1.97 per share, up from $15.63 a year ago, while full year revenue of $5.48 billion would rise 60% year over year.
The fact that full-year revenue is projected to grow at 60% underscores the quality of Airbnb's global brand and unique value proposition. The company’s platform gives it the sort of flexibility on both the supply and demand side that creates a strong competitive advantages over existing hotel operators. The company generates 90% of its traffic from the direct or unpaid channels. That means 90% of the time, customers go straight to its platform to book a reservation.
What’s more, when anticipating the incoming surge in travel demand, Airbnb's flexible business model puts it in a unique position to capitalize on what’s known as the network effect where platform users on both sides of the transaction (host and guest) attract each other to the site. And with more than four million hosts worldwide, this network effect is massive for the company’s total addressable market could be worth $3.4 trillion, according to the management team.
When factoring full-year 2021 revenue is expected to be $5.4 billion, the company's total addressable market suggests there’s a massive growth opportunity to be realized. The question is whether Airbnb can dominate e-travel for years to come. On Thursday investors will want to hear confidence from management about the prospects of the travel industry in 2021 as vaccine distribution accelerates globally.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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