Vacation-sharing platform Airbnb stock (NASDAQ: ABNB) stock has underperformed the broader markets, declining by about 9% over the last month while remaining down by almost 50% this year to date. Although Airbnb’s recent quarterly results have been robust, with booking volumes and average pricing trending higher on the company’s platform, the company’s growth rate is slowing. Moreover, Airbnb’s outlook for the holiday quarter was also weaker than expected, with revenue projected at between $1.80 billion to $1.88 billion, marking an increase of just about 20% year-over-year at the midpoint, compared to 78% growth in the year-ago period. While this is partly due to forex headwinds, there’s no doubt that the big growth the company has witnessed is now behind it. Moreover, the broader travel industry is also likely to see a slowdown in 2023, as economic headwinds mount globally. Some notable brokerages have also turned bearish on Airbnb stock, leading to further selling pressure.
However, we think the stock looks quite compelling at current levels. Based on the current market price of about $87 per share, Airbnb currently trades at just about 6x projected 2023 revenues, well below the 20x multiples it traded at its peak in 2021. The number falls to about 5x if we exclude the company’s net cash position of about $8 billion. Moreover, Airbnb’s business is also emerging to be rather profitable. Net profits came in at a solid $1.2 billion over Q3 2022, up 46% compared to last year. The company has also generated $2.9 billion in free cash flows over the last nine months, translating into a cash flow margin of a substantial 45%. It’s likely that profitability metrics will increase further due to better-fixed cost absorption, as the company can potentially grow its marketing spending at a slower pace than revenue given its strong brand recognition.
Now, there are risks as well. There are also some concerns about whether the company will be able to continue to sign on hosts with quality properties at sought-after locations going forward to support its bookings growth. There are also concerns about the broader global economy, and this makes the travel and leisure sector somewhat vulnerable if people decide to scale back on discretionary spending further. That said, Airbnb’s asset-light model and lower rates versus hotel rooms could prove to be a redeeming factor. We value Airbnb stock at about $125 per share. Our price estimate is about 40% ahead of the current market price. See our interactive analysis on Airbnb Valuation: Expensive Or Cheap? for more details. See our dashboard on Airbnb Revenue for an overview of Airbnb’s business model and how its revenues are likely to trend.
|S&P 500 Return||-6%||-20%||71%|
|Trefis Multi-Strategy Portfolio||-7%||-23%||210%|
 Month-to-date and year-to-date as of 12/21/2022
 Cumulative total returns since the end of 2016