Though the continuing market downturn has affected firms of all stripes, it has notably impacted progress shares. That is not nice information for buyers, however the silver lining is that these companies will not keep down eternally.
Take trip rental platform Airbnb (ABNB -4.91%), which has misplaced almost half its worth up to now yr. There are good causes to suppose the market is undervaluing Airbnb’s potential, making it a wonderful inventory to purchase proper now. Let’s dig a bit deeper.
Airbnb’s current monetary outcomes
Airbnb’s enterprise struggled mightily amid the early days of pandemic. Providing trip leases when folks barely wish to go away their homes for worry of catching a probably lethal infectious illness just isn’t an amazing place to be in. On prime of that, government-imposed lockdowns additional restricted folks’s actions.
Nonetheless, Airbnb’s operations have managed to rebound as folks have ventured out once more. Within the third quarter, income jumped 29% yr over yr to $2.9 billion on the again of a 25% improve in nights and experiences booked, which got here in at 99.7 million for the interval. The corporate reported web earnings of $1.2 billion for the quarter, equating to 46% progress and marking its most worthwhile quarter ever.
Airbnb’s efficiency was particularly spectacular, contemplating the tough financial setting. Shoppers have decreased their spending due to inflation, and plenty of are directing funds primarily towards important items and providers. Geopolitical tensions are additionally having an influence; Airbnb suspended its operations in Russia and Belarus earlier this yr.
Moreover, a strengthening US greenback took a big chunk out of Airbnb’s progress charges. For example, the corporate’s web earnings elevated by an much more spectacular 61% yr over yr on a continuing foreign money foundation. Airbnb’s capacity to ship strong outcomes regardless of all these challenges is commendable.
Constructed to final
Airbnb’s most up-to-date monetary outcomes have been a continuation of what the corporate has proven over the previous few quarters. However regardless of its robust earnings, the shares have continued to fall. That is partly associated to Airbnb’s valuation, which had been fairly excessive. However at its present price-to-sales ratio of 8.7, the inventory appears to be like less expensive than it was a couple of yr in the past.
For context, the S&P 500‘s trailing-12-month P/S ratio was 2.3 as of July, which nonetheless makes Airbnb’s shares expensive compared. However for my part, Airbnb is value a premium given its strong aggressive benefit and progress prospects.
Take into account the corporate’s community results. Visitors on the lookout for trip leases in cities worldwide will probably be more and more interested in its platform because the variety of hosts will increase. Conversely, the extra friends there are on the platform, the extra renters they’ll entice. Airbnb stories that the variety of hosts it companions with retains rising, with greater than 4 million as of the third quarter.
Airbnb’s gross reserving worth — the whole greenback worth of all bookings on its platform — can be trending up. Throughout Q3, this metric jumped by 31% yr over yr to $15.6 billion, offering strong proof of extra exercise from hosts. And there may be loads of room for extra progress. The lodge and resort business was value $1.52 trillion in 2019. That determine dropped precipitously through the depths of the pandemic and has but to completely get well.
Airbnb competes with resorts and presents perks that they do not, together with privateness, facilities, a extra “homey” setting, and decrease costs. These components make its leases extra suited to long-term stays, and this class stays one of many firm’s fastest-growing. Within the third quarter, stays of at the least 28 days accounted for 20% of Airbnb’s gross nights booked. Longer stays match nicely in a post-pandemic world the place extra persons are working remotely and might journey whereas doing so. That ought to assist gas Airbnb’s progress.
Total, the corporate sees an addressable market value $3.4 trillion. It has barely scratched the floor of this chance, and even with stiff competitors, there may be greater than sufficient room for a number of winners. Airbnb can ship outsize beneficial properties to buyers affected person sufficient to carry its shares by the present downturn, making it a wonderful tech inventory to purchase — particularly whereas it is down.