Airbnb (ABNB +2.61%) may have done more to change the way we travel than any other company this century, but that hasn't made the stock a winner.
It went public back in December 2020 and peaked shortly after that as the mania around growth stocks subsided. Airbnb stock is now down 46% from its peak in early 2021, but Wall Street doesn't expect it to stay there. In fact, one analyst, Tigress Financial's Ivan Feinseth, sees the stock reaching $185 a share, or a 58% gain from its current levels.
Feinseth raised his price target on Airbnb from $160 to $185 in March, arguing that the company is leading the shift in travel toward alternative accommodations like home-sharing, longer stays, and new services like experiences.
Feinseth said,
Airbnb remains at the forefront of how consumers prefer to travel by offering a broad variance of accommodations from budget to extravagant and meeting the needs for a broad range of stay duration while benefiting significantly from ongoing hybrid work and travel trends.
He also expects the company's return on capital to rise over time as the business grows and the investment required remains relatively flat since the company has an asset-light business model in which its hosts do the work of accommodating guests.
While Feinseth's price target gives a lot of upside to Airbnb, over the long term, the stock has the potential to move even higher. Here are a few reasons why.
Image source: Getty Images.
The travel boom has legs
While the immediate post-pandemic travel recovery may be fading after it began in earnest following the peak of the omicron variant in early 2022, over the longer term, travel should take an increasing percentage of global GDP.
First, the rise of remote work and hybrid work is enabling more leisure travel. Airlines have already noticed that normally sluggish times of the year, like September, are suddenly busy. And that trend is likely to persist as one of the things that people like about remote work is that it gives them the ability to travel when they want.
Unlike hotels, Airbnb also offers the ability to fund your travels by renting out your space while you're away, a prospect that's especially appealing to younger adults.
Research has also shown that millennials and young adults, compared to older generations, are more interested in spending money on experiences rather than products. This includes travel or going to events like music festivals.
The traditional notion of keeping up with the Joneses is getting flipped on its head, and social media offer one explanation for why this is happening.
Posting about your travels on a social media app like Instagram or TikTok or including the photos in an online dating profile have become ways of building social status or showing off a desire for adventure. Many young people would rather get such status through travel than, say, a luxury car.
For Airbnb, that cultural trend is likely to fuel continued spending on the platform.
NASDAQ: ABNB
Key Data Points
A business beyond travel
Airbnb currently has just one revenue stream -- collecting fees from hosts and guests when a booking is completed. The company also makes a small amount of money from its experiences platform.
However, CEO Brian Chesky envisions the company expanding beyond the travel business over time, promising on the recent earnings call that the company is expanding beyond its core as a travel business.
With its unique brand and positioning as a hub in travel, there are a lot of possibilities for Airbnb to further monetize its platform:
- It could open the marketplace to advertising as e-commerce sites like Amazon and Etsy have done. Instead of having hosts post ads, it could sell destination-related ads for things like tours or restaurants, or services like photography or an at-home chef. Similarly, adding such services could serve as another way to grow its marketplace as travelers want more than just a place to stay.
- For hosts, cleaning is part of the business of hosting on Airbnb, and instead of ignoring this need, Airbnb could create a marketplace for local cleaners and cleaning companies to partner with hosts.
- Adding products that hosts or guests might demand could also help improve the service. Chesky alluded to the potential for long-term stays or month-to-month housing to become a larger part of the business, saying 20% of the business is effectively housing rather than travel.
The Airbnb CEO told the travel blog Skift, "We don't have permission to do new things until people love our core service," which explains why the company is rolling out improvements like price transparency. But over the long term, the company is thinking bigger than just being a home-sharing travel platform.
Airbnb has already proven it can be a high-margin business, and it has a long track record of gaining market share in the travel industry. The stock is trading at a reasonable valuation and has consistently beat estimates. Looking ahead, as the travel industry grows and Airbnb gains market share, the stock could grow by 58% many times over.
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