Airbnb's Resilience and Growth Potential Amid Travel Industry Challenges

This Beaten-Down Travel Stock Has a Major Growth Opportunity -- Here's Why | The Motley Fool

Airbnb has its eyes on the future and is planning to unlock more growth. When it comes to travel there are many options for places to stay. Traditionally, hotels had a monopoly on this aspect of travel but that has changed and it's largely because of Airbnb (ABNB 0.68%). From the company's humble beginnings renting out a room and an air mattress, Airbnb has become a go-to for many travelers, disrupting the hotel industry in the process. From an investing standpoint, the results have been less impressive. Since its debut on the public markets, Airbnb is down 19% while the S&P 500 has risen 54%. The last two earnings reports disappointed Wall Street and sent the stock plummeting. However, a deeper look into the business reveals some exciting growth opportunities that investors would be wise to consider. If these opportunities work out, it could lead to much better returns for investors. It may not have been top of mind for the millions of people who tuned in to watch the Paris Olympics, but all those spectators needed places to stay while at the games. A city like Paris and its surrounding areas don't have the hotel capacity to accommodate the massive influx of visitors, so Airbnb played a crucial role in supplying housing. Airbnb's CEO Brian Chesky even met with the French president to collaborate on this initiative. Large events are not new for Airbnb -- that was the reason the company was founded. The origin story of renting out an air mattress in a bedroom was to provide cheap housing for event attendees. Airbnb is now targeting the top 1,000 events in the world as a growth opportunity. In addition to making attendees aware of Airbnb, the company can use these events as an opportunity to increase the number of hosts on the platform. A lot of people don't want to rent out their homes continually, but might consider it for a few days or weeks when a big event comes to town. If those one-time hosts end up liking the experience and the extra income, they could become regular hosts, which is great for Airbnb. Another interesting initiative that management mentioned on the recent earnings call was a co-hosting marketplace. The idea is that some people might have a home to rent but not the desire or time to be a host. Others may have the interest and time to put into hosting but don't have the home. In October, the company will launch this new service to unlock new inventory. When using Airbnb, most travelers have a destination and a time frame in mind. By searching the location and dates of travel, a list of potential inventory appears for users to browse through. However, the advent and rapid improvement of generative artificial intelligence (AI) provides a new opportunity for Airbnb. Imagine that instead of the traditional search, users could have a conversation with Airbnb's AI. Over time, the AI could learn about the user and their preferences, unlocking better and more personalized search results. This idea of a travel concierge is something that Airbnb is working on, but management was clear that it was not imminent. Regardless, it's something worth keeping an eye on. One of Airbnb's key performance metrics is its nights and experiences booked. In the most recent quarter, the second quarter of 2024, Airbnb had 125 million nights and experiences booked. This was up 9% year over year. Interestingly, the experiences part of the business is not nearly as well known by Airbnb users and management wants to change that. With an upcoming relaunch of the experiences business, the company hopes to raise awareness and grow its inventory of unique and affordable experiences that can only be found on Airbnb. By making experiences easier to search and promoting them with video trailers, management hopes its impending relaunch can boost this important part of its business. Airbnb is a brand that is well known and is continually gaining market share. Growth has slowed over the past year, but it seems that is because of the overall travel environment rather than anything specific to Airbnb. The company is continually innovating, adding new features, and responding to user feedback. If these new growth opportunities can take hold, it could unlock even more revenue, hosts, and guests.

Should Investors Give Up on Airbnb Stock? | The Motley Fool

Airbnb stock trades below the closing price on its first day of trading in December 2020. Long-term holders of Airbnb (ABNB 0.68%) stock have likely experienced deep frustration with this stock. Due to the site's ability to increase the supply of vacation properties, attract new landlords and tenants through the popularity of its brand, and apply artificial intelligence (AI) to solve business-related issues, many investors thought it could achieve outsize gains. Amid that optimism, it debuted in late 2020 at $68 per share but rose to $145 per share on the first day. Unfortunately, for long-term investors, the momentum did not last, and nearly four years after the IPO, it trades at just under $120 per share. This lack of performance may leave investors wondering whether they should stay in Airbnb stock. Does that stock performance mean the bulls were wrong about the stock, or does it need more time or better business conditions to achieve its full potential? Let's take a closer look. Determining why Airbnb stock has underperformed probably comes down to a few factors. One is the timing of its IPO. Initiating trading in December 2020 allowed it to not be affected by the most severe of the lockdowns. Still, stocks were in the midst of a significant bull market at that time, leaving the stock with considerable downside when investors began to sell stocks. Another reason is likely the uncertain economy in the U.S., its largest market. In a sense, its business has held up well, with a 12% yearly increase in gross booking volume (GBV) in the first half of 2024. Still, its customers are booking stays on shorter notice, indicating a lack of confidence to book a few months in advance. Also, despite the lackluster stock performance, investors may question the company's valuation. A $2.7 billion tax benefit in the third quarter of 2023 gave net income a one-time boost, which is why its trailing price-to-earnings ratio (P/E) is only 16. Nonetheless, if looking at the forward P/E ratio, which does not include such a tax benefit, the multiple rises to 28. In an environment where bookings growth is barely in the double digits, it is not clear how investors will perceive its valuation. Still, shareholders still have good reason to remain optimistic about its long-term future, mainly because it still has many largely untapped markets where it can increase its growth. One option is to lean more into its international business. The U.S. makes up a plurality of Airbnb's 8 million listings. The fact that the U.S. is approximately 4% of the world's population shows most countries are undertapped markets. Additionally, investors may forget that Airbnb also coordinates experiences, which can include wine tastings, walking tours, wellness sessions, and other events. To that end, it introduced a new category of experiences called Icons, a supercharged version of the experiences hosted by people and places tied to film, art, music, sports, and other interests. The company highlighted a VIP event with comedian Kevin Hart or spending the night in the Ferrari museum as examples of such experiences. Over time, such add-ons could further reinforce the brand recognition that has made Airbnb an industry leader and drive significant revenue and earnings growth. Despite years of disappointment, it is not necessarily time to give up on Airbnb stock. Nearly four years of stagnation in the stock price can try investors' patience, and without a more obvious catalyst, profiting from this stock will likely require more years of waiting. Nonetheless, its 28 P/E ratio may mean the stock has become fairly priced. Moreover, considering the vast opportunities to book nights and experiences it has not yet fully pursued, its revenue growth should continue. Indeed, exercising patience has arguably become the most challenging part of being an Airbnb shareholder, and many investors will probably feel it is not worth the wait. However, for those that can stay the course, rising revenues and growth potential make it likely the stock will move higher over time.