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Saturday, January 22, 2022

Airbnb stock: Expensive, but worth it (NASDAQ:ABNB)

Carl Court/Getty Images News

Introduction and Thesis

Travel by definition is going from one place to another for any reason, and when travel occurs, accommodation becomes a necessity. Today, hotels have been the primary destination for travelers including; However, I believe that hosting Airbnb (ABNB) could challenge traditional hotels in the coming years. Airbnb is a technology company that connects hosts and guests. Hosts are people where they allow guests to stay in their homes for profit while the guests enjoy it as Airbnb calls it a “home away from home” and this model has significant advantages over traditional hotels that Create a beneficial underlying trend for Airbnb. The remote work culture is prompting more travelers to consider longer vacations, while having hassle-free check-in and their benefits of staying home compared to a small hotel room. In addition, the demand for halted international travel decreased. In my opinion, the market leadership challenge-free position of Covid and Airbnb creates investment opportunities.

Benefits of Airbnb

Airbnb’s hosting business model has advantages over traditional hotels, and I believe the benefits Airbnb offers will be the strongest and biggest underlying trend behind the company’s future growth.

Airbnb can be one of the best vacation destinations for families. They offer an entire residential home, apartment or condo, which is generally more private and spacious than a hotel room. Families will not share a small hotel room and a lobby with hundreds of other guests. In addition, guests using Airbnb have their own kitchen, which is not available in hotel rooms. Thus, for a large family, group of friends, or multiple families, Airbnb may be the better choice, and I believe these benefits are one of the main reasons for the $3.4 trillion total addressable market.

Market conditions and competition

One of the most important things for a growth company capitalizing on a new market is competition. Severe competition has the potential to materially damage a company’s growth outlook; However, this is not the case for Airbnb. I believe Airbnb has a strong leadership in the industry with undeniable brand recognition.

Airbnb’s most prominent competitor is Vrbo, owned by Expedia Group (EXPE), which is also a vacation home rental company. However, I believe that Vrbo poses no threat to Airbnb. As the picture below shows, Airbnb has the most searches in all 50 states and almost 4X more searches than Vrbo, according to Google Search Trends Comparing Vrbo and Airbnb. I believe this important data indicates that consumers are highly likely to choose Airbnb over Verbo.

Airbnb vs Vrbo Search Trends

Airbnb and Vrbo . comparison of search trends between

Google Trends

In addition, Airbnb became a nun like many other companies dominating its industry. I believe this is very powerful because it indicates that brand recognition is very high as the name of the company, Airbnb, has become a term describing the service offered by the entire industry. For example, Google is an undisputed leader in the Internet search industry. People often say “I don’t know. Google it” as well as “I don’t know. Find it” proves Google’s undeniable power in the market. Similarly, travelers often say “Let’s get Airbnb” instead of Let’s Go Get a Vacation Home Rental. Such a phrase has become so common that Airbnb’s brand identity and market position are virtually unchanged today.

secular trend

Pandemic has changed our lives and society forever, and after every significant change in society always comes an opportunity. COVID-19 has led to rapid adoption of digitization in the form of remote work. Technological advancements allowed for easier connectivity for companies and workers in many ways during the pandemic, and for some, remote working proved more beneficial for both the company and its employees. As a result, employees suddenly had the freedom to work wherever they wanted, resulting in longer vacations.

Airbnb calls this phenomenon the travel revolution. The company says that “for centuries, people have been limited in where they work,” which limits flexibility in vacationing at certain times of the year. However, because the pandemic opened up remote working and ultimate flexibility, travelers are traveling at any time and staying longer. As a result, long stays of more than 28 days became the fastest-growing segment of Airbnb’s business, accounting for 20% of all bookings. I believe this secular trend offers immense opportunities for Airbnb because travelers staying for longer stays will almost always prefer Airbnb over a hotel, especially if they have families.

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During the pandemic, companies have realized that it was not necessary to physically maintain an expensive office as workers preferred remote work. According to Airbnb, some of the biggest companies have already embraced remote work, including Amazon (AMZN), Ford (F), Procter & Gamble (PG), and PwC, which are especially important for US employees working from home. Contributes about 25%. The trend of remote working, due to its benefits, will not be a temporary phenomenon seen during the pandemic as companies adopt hybrid and fully remote working. So, as flexibility opens up new avenues of travel, Airbnb could benefit from a wave of travelers looking for a real home away from home.

covid restrictions and travel

Airbnb’s growth in 2020 was devastated by pandemic travel restrictions; However, I believe that global sentiments regarding travel are finally turning positive in 2022, which could result in an increase in demand for international and domestic travel.

Covid cases are at their peak in many countries since the start of the pandemic, including the United States. However, the mortality rate has remained mostly stable over the past few months, indicating that the newer Omicron variant is more transmissible but less lethal. Data from British health officials support this argument as the country reported that “people with omicrons are less likely to be hospitalised.” Thus, as the waves of omicron cases pass, vaccination increases worldwide and covid oral treatment pills are mass produced, the The COVID-19 pandemic will only pose a minor threat by the end of 2022, increasing demand for travel that benefits Airbnb. WHO chief Tedros Adhanom Ghebreyesus reiterated in a statement that Kovid-19 has a chance to end in 2022. Therefore, I believe 2022 will prove to be a period of exploding growth for Airbnb.

financial situation

Airbnb’s financial health is very good as shown on the balance sheet. The company has approximately $6 billion in cash with approximately $13.6 billion in total assets, while the company had approximately $9.1 billion in total liabilities, which put its total assets to liability ratio (L/A) at approximately 67%. The company also had approximately $2 billion in long-term debt; However, I believe it is manageable as the company has more than three times the cash pile. Also, because the company is showing sporadic profitability depending on the time of year, I believe Airbnb is close to the time period where they are reporting consistent profits; Therefore, I believe the current financial position is strong, and it is able to support Airbnb throughout its operations.

risk

The biggest downside to my Bullish thesis is the risk assessment and underlying macroeconomic trends. Airbnb may have a great business and great fundamentals; However, this is followed by a higher valuation.

Airbnb is worth about $100 billion, with a sales ratio of about 30, and though the company reports net income sporadically. In 2021 Q3, Airbnb reported $834 million in net income, compared to a net loss in the previous quarters in 2021. This was due to a strong summer season, so for the time being, Airbnb’s profitability may depend on the time of year. Therefore, unless the company’s valuation shows consolidation, the biggest risk to my Bullish thesis on the company would be a high valuation.

Higher valuations are an even bigger concern today as Airbnb is not yet profitable while the Federal Reserve is expected to raise rates. The tapering is expected to end in early March, and the first rate hike is expected to begin in March, ending easing monetary policy, which will hurt Airbnb going forward.

Summary

Airbnb has a unique story, and the idea of ​​renting a home away from home is sparking a new travel revolution. This underlying trend of long-term travel backed by Ripple and the continuing trend of remote working is making a great bullish thesis. In addition, after the possible end of the company’s dominant position in the market The ongoing Covid restrictions driving demand for pent-up travel make Airbnb a buy. However, as the tapering ends and rates are expected to rise, investors should keep an eye on the valuation of the company before making an investment decision.

World Nation News Deskhttps://www.worldnationnews.com
World Nation News is a digital news portal website. Which provides important and latest breaking news updates to our audience in an effective and efficient ways, like world’s top stories, entertainment, sports, technology and much more news.
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