- Airbnb stock is down 44% during the past three months as investors exit tech stocks
- The booking app has developed a business model which is flexible enough to deal with the various economic challenges
- Past experience suggests the impact of an economic slowdown won’t be too harsh on the travel industry
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When markets take an ugly turn, separating the wheat from the chaff becomes even more essential to investing. This statement is particularly relevant in the current market downturn, as investors dump growth stocks indiscriminately without looking into their fundamentals and future prospects.
Airbnb (NASDAQ:ABNB) is an example of a good company hurt by a weak market. Shares of the global platform for vacation home rentals are down around 44% over the past three months amid investors’ en-mass exit from high-growth stocks.
As the Federal Reserve aggressively tightens monetary conditions—a move that could push the economy into a recession—the rush to sell has devastated the scores of virtually every technology company that went public in the U.S. during the pandemic.
As a result, more than 80% of tech-related initial public offerings since March 2020 are trading below their listing price, according to data compiled by Bloomberg that looked at IPOs of at least $500 million.
How long the current sell-off continues is anybody’s guess, but there is a strong case to be made that ABNB is a solid travel stock to keep in a long-term portfolio.
First, the San Francisco-based booking platform has developed a business model which is flexible enough to deal with the various economic challenges. The most significant evidence of this adaptability came during the pandemic when travel demand suddenly plunged, casting doubts over a company’s future that went public during one of the biggest health crises of modern history.
But during those two years of upheaval, Airbnb not only managed to weather the pandemic but also thrived, achieving the best year in the company’s history in 2021.
The company quickly restructured its app to take advantage of a new world of travel due to the flexibility offered by new remote work policies that allowed people to spread out to thousands of towns and cities, staying for weeks, months, or even entire seasons at a time. During that period, Airbnb undertook the largest makeover of its app since its foundation, adding more than 100 new features that promise to streamline the process for guests and hosts alike.
The Best Summer Ever
Second, little evidence suggests that people will stop spending on travel even if a recession arrives within the next 12 months.
IATA Director General Willie Walsh told a gathering of airline CEOs last month that experience suggests the impact of an economic slowdown won’t be so harmful to the travel industry. He pointed to the global financial collapse of 2008, after which passenger numbers held steady in 2009 and showed strong growth in 2010.
In its latest earnings report, Airbnb said that the booking platform expects this summer to be one of the best the industry has ever seen as travelers unleash pent-up demand and head to far-flung destinations and tourist hot spots.
Chief Executive Officer Brian Chesky wrote in a letter to shareholders:
“As we lap the beginning of the travel rebound that started last year, we are particularly encouraged by the compounding growth we are seeing in North America. U.S. domestic demand this year has so far outpaced our internal expectations, and we are encouraged by U.S. international bookings exceeding 2019 levels.”
One reason that kept investors from buying ABNB was the stock’s high valuation compared to its competitors. But that has changed after the recent sell-off. Airbnb now sells about 9 times its sales for the trailing 12-month period, down from 14 times in early May.
Bottom Line
The current environment of risk-aversion doesn’t make many high-growth technology companies attractive. But ABNB doesn’t fall in this group, in our view. The company has all it takes to not only survive but grow in this challenging environment. The stock’s 44% drop during the past quarter offers a good entry point for long-term investors.
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