Airbnb (NASDAQ: ABNB) shares have experienced quite a sell-off recently. Since rising to $220 in mid-February – when high-growth stocks were on fire – the stock has fallen to $143. That represents a decline of 35%. The stock is still well above (110%) its December 2020 IPO price of $68, however.
Has this share price pullback created a buying opportunity for me? Let’s take a look at the investment case.
Airbnb shares: the bull case
There are a number of things to like about Airbnb from an investment view, in my opinion.
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The first is that the global travel industry looks set to boom now that Covid-19 vaccines are being rolled out. Right now, there’s an enormous amount of pent-up demand to travel. After more than 12 months of lockdowns and other coronavirus challenges, people are desperate to take a holiday. This backdrop should favour Airbnb in the years ahead.
Secondly, Airbnb’s offering is very well suited to the current environment. What a lot of people are looking for right now is a holiday with friends and family. Instead of taking a touristy-type holiday (i.e. visiting Paris to see the Mona Lisa), they want to spend quality time with the people close to them. They also want to protect themselves from Covid-19. Airbnb’s apartments, houses, and villas could be a perfect solution.
Third, Airbnb is the clear leader in the holiday rentals online marketplace space. It does have quite a few competitors now. However, ABNB is the dominant player in the space by a wide margin. Its powerful brand (which has become a verb) gives it a competitive advantage.
Finally, it’s worth noting that broker sentiment towards Airbnb shares has been quite positive recently. In March, for example, Citigroup raised its price target for the stock to $197 from $165. More recently, Evercore initiated coverage of the stock with a $245 price target.
The bear case
There are risks to the investment case, however. One is that in the short term, results could be weak due to global lockdowns. Airbnb is set to release its Q1 results tomorrow, after the US market closes. Currently, Wall Street analysts expect the group to post revenue of $715m and earnings per share of -$1.15 for the quarter. If results are below expectations, the stock could be volatile.
Another issue is that it’s hard to know how long it will take for the travel industry to really get going. In the short term, we could continue to see setbacks due to Covid-19.
Finally, Airbnb’s valuation remains quite high. At its current share price, it has a market capitalisation of around $87bn. That’s only a little below the combined market caps of Marriott International ($46bn), Hilton Worldwide Holdings ($34bn), and InterContinental Hotels Group ($12bn). This high valuation adds risk. It seems a lot of future growth is priced in.
ABNB stock: my move now
Weighing everything up, I’m going to keep Airbnb stock on my watch list for now. If it falls further, I may buy some shares.
However, at the current share price, I’m not convinced that the risk/reward proposition is brilliant.
