Since the start of 2023, the stock market has been benefiting from tremendous investor optimism. Credit could go to the expectation of lower interest rates or the belief that the economy has proven to be resilient.
Riding this momentum, Airbnb (ABNB +2.71%) shares have soared 84% in the last 14 months. The alternative accommodations platform is posting strong financial results as demand remains robust.
But investors who bought shares at the initial public offering in December 2020 have only registered a gain of 10% (as of March 1). That seriously lags the 31% rise of the Nasdaq Composite Index.
Maybe there are much better days on the horizon. Can the low-performing Airbnb stock make you a millionaire one day?
A dominant force in the industry
It's impressive to see what Airbnb's founders have built in just the past 17 years. The business carries a market cap of over $100 billion today, making it one of the most valuable companies on the planet.
That's helped by this company's tremendous scale. Airbnb currently has 5 million hosts and 7.7 million listings in 220 countries and regions across the globe. And last year, 448 million nights and experiences were booked, with a total gross booking value of $73 billion.
This size is hard to wrap one's head around. For comparison's sake, let's look at Marriott International, the world's largest hotel chain. As of Dec. 31, it had 8,800 properties and 1.6 million rooms available. That doesn't hold a candle to Airbnb's reach.
Consequently, it's impressive just how powerful Airbnb's brand has become, as the name is used as a verb that's synonymous with short-term rentals. This gives it incredible mindshare, which makes it easy to attract new customers.
NASDAQ: ABNB
Key Data Points
Latest financials
Despite macroeconomic headwinds that might negatively impact discretionary spending habits, Airbnb is still posting solid results. Revenue increased 18% in 2023 to $9.9 billion. Growth was especially strong in Asia-Pacific and Latin America. And it's worth noting that long-term stays, those for 28 days or more, represented 19% of all gross nights booked, showing Airbnb's ability to cater to different travel needs.
From a profitability perspective, Airbnb is flexing its muscles. Net income came in at $4.8 billion last year. To be clear, a one-time tax benefit helped the bottom line. But this is still a sound financial enterprise, as demonstrated by the positive free cash flow of $3.8 billion in the last 12 months and the net cash position of $8.1 billion.
Investors should be encouraged by management's intense focus on innovation, which will only help to drive business results going forward. Just in the last three years, 430 new product features were introduced, all with the intention of improving the experience for hosts and guests. Constantly trying to find ways of making the platform better for users should always be a top priority, unless Airbnb wants to lose them to rival firms.
This company is also finding ways of integrating artificial intelligence throughout its operations. The revolutionary technology is already being used to filter out guests that might throw parties, for example.
"While we've been using AI across our service for years, we believe we can become a leader in developing some of the most innovative and personalized AI interfaces in the world," CEO Brian Chesky noted on the Q4 2023 earnings call.
The potential for outsized returns
You won't struggle to find reasons to appreciate this business. But for it to become a millionaire-maker over the long term, there are some other factors to consider.
The current valuation is one of them. At a price-to-earnings ratio of 22.1, Airbnb doesn't look expensive, particularly when you think about its market dominance and growth potential.
Of course, for a stock to become a million-dollar holding one day, the size of the initial investment has a profound impact, as does the time horizon. A bigger initial cash outlay, coupled with a decade (or more) holding period, raises the chances of hitting the seven-figure mark.
Nonetheless, Airbnb looks like a smart portfolio addition right now.
