Travel stocks have been through some major turmoil this past week, and Airbnb could be a refuge from the storm.
With the summer travel season just getting underway, American Airlines Group Inc. issued its first bit of bad news last week when it cut its earnings outlook. The announcement on Wednesday sent other airline stocks lower.
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Exchange-traded funds fell more than 2%, while online travel agency Booking Holdings Inc. dropped 1.3% and cruise line Carnival Inc. slid 2.7%. Airbnb Inc. was little affected, down 0.2% on Wednesday.
Things aren't perfect for Airbnb. Since May 8, when the company reported its first-quarter earnings, its shares have fallen 8% to $145.52. That's not a bad performance. Part of the problem is that the stock had already risen double digits this year before the earnings release, reflecting strong optimism after the company forecast second-quarter sales growth to slow to 9%, to $2.71 billion, at the midpoint of its range. The fact that Airbnb's stock has barely moved could be a sign that its recent problems are over.
Wedbush Securities analyst Scott Devitt thinks so. He upgraded the company's shares to outperform from neutral on Tuesday, noting that management expects revenue growth to accelerate again in the third quarter. He also sees a stash of strong consumer spending that should materialize over the summer. As evidence, Devitt sees more visits to the company's website year-over-year in May than in April. That's part of why he thinks U.S. bookings, which are the total U.S. spending before Airbnb's transaction fees are deducted, will grow by low double digits in the coming months.
“[There’s] “It could be better than near-term expectations,” David said, noting that the stock is still down since the earnings report. “Investors should take advantage of this.”
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But that's more than a quarter. Spending on “alternative accommodation,” the industry term for Airbnb's short-term rentals, is expected to grow double digits annually for the next decade or so, eventually topping $600 billion, according to Future Market Insights. The most growth is expected to come in Asia, where Airbnb already gets a small portion of its total revenue.
Analysts expect the company's total bookings to grow to nearly $140 billion by 2029, up from $73 billion last year, according to FactSet.Airbnb's take rate, or transaction fee, should increase slightly, especially as the company charges for additional actions, such as users booking a room in a foreign currency.The company may also add sponsored listings, in which property owners who list their space would pay an extra fee.
All of this leads analysts to expect the company's sales to grow at low double digit rates annually over the next five years, reaching roughly $20 billion by 2029. Meanwhile, with marketing spending growth likely to slower than revenue growth, revenue could grow more than 20% annually through 2029 to $11.25 per share.
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Trading at 30.9 times expected next-12-month earnings, the stock has plenty of upside potential: If it can maintain that multiple, it could rise 24% annually to $347 through 2028. Even if we assume that growth prospects slow through 2028, bringing the multiple to about 24 times, the lowest it's been in the past two years, the stock would still rise more than 15% annually.
That seems like a journey worth taking.
Write Jacob Sonenshine jacob.sonenshine@barrons.com
