Despite economic uncertainties and geopolitical instability, the travel industry is thriving due to pent-up demand. The World Travel & Tourism Council (WTTC) predicts that 2024 will be a record-breaking year for travel and tourism, with the sector’s global economic contribution likely to reach an all-time high of $11.10 trillion.
As the world economy continues to outpace its pre-pandemic levels of prosperity, WTTC projects that 142 of the 185 countries analyzed will outperform their previous national records.
Amid this backdrop, it is an opportune time to invest in travel companies with sound fundamentals and bright prospects. Let's determine if Airbnb, Inc. (ABNB) is an ideal buy as travel demand surges.
Valued at a $93.95 billion market cap, ABNB is known for operating a platform that allows hosts to provide stays and experiences to guests globally. Airbnb had a solid start to 2024, with the company posting first-quarter revenue of $2.14 billion, surpassing the consensus estimate of $2.06 billion.
For the first quarter, the company reported a Gross Booking Value (GBV) of $22.90 billion, up 12% year-over-year, driven by robust growth in Nights and Experiences Booked and a modest increase in average daily rate (ADR). ABNB’s Nights and Experiences Booked amounted to 132.60 million, up 9.5% compared to the prior year’s period.
Furthermore, ABNB reported earnings per share of $0.41 for the first quarter, beating the analysts’ estimate of $0.23.
Brain Chesky, CEO and co-founder of ABNB, said, “During Q1, we made significant progress across our three strategic initiatives, which are: making hosting mainstream; perfecting our core service; and expanding beyond the core.”
After a solid first-quarter performance, the company offered weak guidance. For the second quarter of 2024, ABNB expects revenue of $2.68 billion to $2.74 billion, representing year-over-year growth of between 8% and 10%. Also, it expects adjusted EBITDA to be flat to up on a nominal basis, but down on an adjusted EBITDA margin basis, relative to the prior year’s quarter.
For the full year 2024, ABNB expects adjusted EBITDA to grow on a nominal basis and to deliver an adjusted EBITDA margin of at least 35%.
Shares of ABNB have gained 5.7% over the past six months and 1.7% over the past year to close the last trading session at $150.18.
Let's look at factors that could influence ABNB’s performance in the upcoming months.
Robust Financials
For the first quarter that ended March 31, 2024, ABNB’s revenue increased 17.8% year-over-year to $2.14 billion. The company reported an adjusted EBITDA of $424 million, indicating a 61.8% year-over-year rise. Its net income came in at $264 million, or $0.41 per share, up 125.6% and 127.8% from the prior year’s quarter, respectively.
Additionally, ABNB’s free cash flow rose 20.7% year-over-year to $1.91 billion. As of March 31, 2024, ABNB’s cash and cash equivalents were $7.83 billion, compared to $6.87 billion as of December 31, 2023.
Impressive Historical Growth
Over the past five years, ABNB’s revenue has grown at a CAGR of 22.1%. The company’s total assets have increased at a CAGR of 25.6% over the same period, and its normalized net income has improved at a 113.9% CAGR. Furthermore, the company’s EBITDA has grown at a CAGR of 77.2% over the same timeframe.
Mixed Analyst Expectations
Analysts expect ABNB’s revenue for the second quarter (ended June 2024) to grow 10.1% year-over-year to $2.74 billion. However, the company’s EPS for the same period is expected to decline 7.6% year-over-year to $0.91. Also, the company has topped consensus revenue estimates in all four trailing quarters.
For the fiscal year ending December 2024, Street expects ABNB’s revenue to grow 12.8% from the prior year to $11.19 billion. However, the company’s EPS for the ongoing year is expected to decrease 37.5% year-over-year to $4.52.
High Profitability
ABNB’s trailing-12-month gross profit margin of 82.86% is 125% higher than the 36.83% industry average. Similarly, the stock’s trailing-12-month EBITDA margin of 16.19% is 42.7% higher than the industry average of 11.34%. Also, its trailing-12-month net income margin of 48.23% is considerably higher than the industry average of 4.93%.
Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 74.91%, 11.40%, and 20.13% are significantly higher than the industry averages of 11.89%, 6.27%, and 4.21%, respectively. Its trailing-12-month levered FCF margin of 30.02% is considerably higher than the industry average of 5.46%.
Stretched Valuation
In terms of forward non-GAAP P/E, ABNB is trading at 32.25x, 107.6% higher than the industry average of 15.53x. The stock’s forward EV/Sales multiple of 7.74 is considerably higher than the industry average of 1.20. Likewise, its forward Price/Cash Flow of 24.61x is 154.1% higher than the industry average of 9.69x.
Further, the stock’s forward Price/Sales multiple of 8.52 is considerably higher than the industry average of 0.91. Its forward EV/EBITDA of 21.33x is 117.3% higher than the industry average of 9.82x.
POWR Ratings Reflect Uncertainty
ABNB’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. ABNB has an A grade for Quality, justified by its higher profitability relative to its peers. However, the stock has a C grade for Value, consistent with its higher-than-industry valuation.
Additionally, ABNB has a C in Stability, in line with its 24-month beta of 1.69.
Within the Travel – Hotels/Resorts industry, ABNB is ranked #8 out of 20 stocks.
Beyond what I have stated above, we have also given ABNB grades for Growth, Sentiment, and Momentum. Get all ABNB ratings here.
Bottom Line
Despite economic uncertainties and geopolitical shake-ups, the travel industry’s resurgence is evident, with pent-up demand driving growth. Airbnb is well-poised to capitalize on this trend, demonstrated by its solid first-quarter 2024 performance. However, investors should consider ABNB’s mixed analyst expectations and the stock’s high valuation compared to its peers.
Given ABNB’s elevated valuation, mixed analyst estimates, and enhanced volatility, waiting for a better entry point in this stock seems wise now.
How Does Airbnb, Inc. (ABNB) Stack Up Against Its Peers?
Given its near-term uncertain prospects, the odds of ABNB outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these three A (Strong Buy) or B-rated (Buy) stocks from the Travel – Hotels/Resorts industry:
Genting Berhad (GEBHY)
Travel + Leisure Co. (TNL)
Playa Hotels & Resorts N.V. (PLYA)
To explore more A or B-rated travel stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ABNB shares rose $0.34 (+0.23%) in premarket trading Tuesday. Year-to-date, ABNB has gained 10.56%, versus a 17.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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