By Nicholas Rossolillo
KEY POINTS
- Airbnb is riding a global recovery in travel and generating record revenue and profitability.
- Remote work could keep the company in growth mode for years to come.
- Risks from rising interest rates and a recession remain, but shares look attractive for long-term investors at these levels.
Airbnb stock's decline may not be over, but this Fool is buying for a decade of growth ahead.
After quickly reaching all-time highs in early 2021 shortly after its IPO, shares of Airbnb($Airbnb, Inc.(ABNB)$ )have struggled to hold on to any positive momentum. As of this writing, the stock is down 56% in the past year and a half.
The business itself is doing quite well, though, as travelers around the globe make use of Airbnb's accommodations and experiences booking tool. After a big sell-off in the first half of 2022, I'm a buyer right now.
Reasons why Airbnb's stock is down
Airbnb's big sell-off can be summed up pretty simply:It was way too expensive after its IPO.In early 2021, the stock was trading for more than 30 times trailing 12-month revenue and generating negativefree cash flow(mostly because of the early effects of the pandemic and travel closures).
Shares have come down to a far more reasonable level now, helped in large part by the U.S. Federal Reserve's aggressive interest rate increases in an attempt to bring down inflation. Higher interest rates especiallylower the present value of growth stockslike Airbnb. However, after the stock's decline amid a year of travel industry recovery and sizzling Airbnb expansion, shares now trade for less than 10 times trailing 12-month revenue, 23 times free cash flow, and 37 times one-year forward expected earnings.
Why Airbnb's business is booming
Airbnb's growth story is no secret. It's been attracting lots of hosts around the world, with its site catering to unique places to stay. New improvements to the app, including long-term stays and flexible dates, have made Airbnb attractive forremote workers and digital nomadsseeking accommodations outside the typical hotel or resort.
Aglobal travel reboundalso helps. According to the U.S. Travel Association, domestic leisure travel has now surpassed pre-pandemic levels. Business travel is also starting to show signs of life again. International travel still has a long way to full recovery, according to the World Tourism Organization, but steady improvement will no doubt boost Airbnb.
In spite of these challenges, Airbnb reported record quarterly revenue of $1.5 billion and adjustedEBITDAof $229 million in Q1 2022.
How I'm going about buying this stock
Airbnb is no cheap stock. Even after steep declines, shares are still valued on the assumption that business will keep growing at a rapid pace. Nevertheless, given the company's trajectory and massive cash hoard ($9.3 billion in cash and short-term investments, along with $2 billion in debt), I plan on doubling my position in Airbnb.
A few important notes on why I'm buying:
- My existing position in Airbnb is less than 0.5% of my total portfolio value.
- I plan on doubling my position with multiple purchases spread out over several months.
- I have no plan to sell my shares since I have no foreseeable need for the money for the next decade.
To be sure, Airbnb's decline may not be over. If the Fed keeps raising interest rates or if a global recession hits, there is plenty of room for the stock to fall further. However, I think remote work will bode well for Airbnb over the next decade, and a gradual global travel recovery will help keep the business in growth mode.
Resource: the Motley Fool
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