Up Over 70% This Year, Is Airbnb Stock Fully Valued?

Vacation-sharing platform Airbnb stock  (NASDAQ: ABNB) had a solid run in 2023, rising by over 70% year-to-date. This compares to the Nasdaq-100, which has gained about 54% over the same period. People have continued to spend on travel, despite scaling back on other discretionary purchases amid rising interest rates and high inflation and this has helped Airbnb. Moreover, the trend of pent-up travel demand post-Covid-19 has also persisted, with people looking for more offbeat locations.

Over the most recently reported quarter, Q3 2023, the company posted revenue of $3.4 billion, up 18% from a year ago. Gross bookings stood at $18.3 billion, up 17% from a year ago. Airbnb also remains extremely profitable, with net income excluding one-time items coming in at $1.6 billion, implying net margins of a solid 33%. The high levels of profitability and free cash flows have enabled Airbnb to repurchase stock for over a year now with total buybacks totaling about $3.0 billion. The company has reduced its fully diluted share count marginally from 698 million in Q3 2022 to 681 million at the end of Q3 2023. The lower share is also likely helping Airbnb stock. The company also recently acquired an AI startup, in a move that could help customers better zero in on stays they like using a conversational chatbot, rather than using filters. This could be important, given that Airbnb also has much more diverse and unique properties on its platform compared to hotels.

ABNB stock has seen little change, moving slightly from levels of $145 in early January 2021 to around $145 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Overall, the performance of ABNB stock with respect to the index has been quite volatile. Returns for the stock were 13% in 2021, -49% in 2022, and 72% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 (YTD) – indicating that ABNB underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could ABNB face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

At the current market price, the stock currently trades at about 20x projected 2023 earnings. While this may be a very reasonable valuation considering Airbnb’s high margins and strong recent growth, things are likely to cool off, with consensus pointing to a decline in earnings next year. The company provided fourth-quarter financial estimates that were below market estimates amid geopolitical turbulence, rising costs, and an uncertain economy. These trends could impact the company in 2024 as well. Airbnb has also been confronting a backlash on social media for issues such as high cleaning fees and chore lists left by hosts. These issues could turn customers back to hotels, given that Airbnb is no longer seen as a “value” option, with average daily rates coming in at about $161 in the most recent quarter. Moreover, regulatory challenges persist for the company, with the recent prohibitions on short-term rentals in places like New York. There are concerns as to whether Airbnb can continue to sign on hosts with quality properties at sought-after locations.  We value Airbnb stock at about $140 per share, which is slightly below the 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.

[1] Month-to-date and year-to-date as of 12/20/2023
[2] Cumulative total returns since the end of 2016