Airbnb (NASDAQ: ABNB) is a disruptor in the hospitality sector. The company started when the founder began renting his loft space out, offering airbeds in San Francisco. The rest is history, as they say, because the company is now worth over $100bn.
Is it time for me to buy some shares, even after the near 30% rise so far this year?
Earnings season in the US
The shares really popped last week, so why was that? Earnings season is in full swing in the US right now, and Airbnb released its quarterly update to the market. Revenue grew 67% to $2.2bn, beating analyst expectations of $2.07bn. Gross bookings were huge at $11.9bn, up by 24% from two years ago (crucially pre-Covid).
This is a good sign for the holiday and travel market that has been subject to months of disruption because of the pandemic. It also shows there’s high demand out there for a different kind of hotel, suggesting that Airbnb really does continue to disrupt the sector.
Airbnb’s growing market
But it was the outlook for the company that really captured my attention. CEO Brian Chesky (the founder who rented out his loft space), stated that new travel trends are likely here to stay. This hints at a new market for Airbnb.
What Chesky was suggesting relates to the new work-from-anywhere culture that I think is evolving due to Covid. A lot of people now have the freedom to work remotely, and how better else to work than renting via Airbnb in a nice location?
If the firm can continue to capture this market, then revenue should grow further from here. This is on top of the market share it’s already taking from the big hotels as it carries on its mission of turning the hospitality sector on its head.
Risks remain
It’s not all perfect though. I’m still concerned that the pandemic is far from over. Cases are rising in Europe, and any new strain of Covid-19 may just upend the recovery in Airbnb’s core holiday market. During the early stages of the pandemic, Chesky had to cut thousands of jobs at the company, and was subject to more than $1bn in cancellation fees. This would be tough to take for a second time.
I’m also put off by the valuation. The company is loss-making so a price-to-earnings ratio isn’t meaningful. On a price-to-sales ratio though, Airbnb is rated on a lofty 21 multiple. This means investors are already pricing in a lot of growth, and I’m not sure I’m prepared to pay up for the shares on this valuation.
Wait and see
I do like Airbnb, both as a user of the platform, and for the potential I see in the shares. However, the valuation puts it out of my reach for now. I’m going to keep it on my watchlist for now as I think there are other, more affordable, growth stocks I could buy today.