Shares of Airbnb (NASDAQ: ABNB) have been extremely volatile since its initial public offer in December 2020. During the IPO, Airbnb was priced at $68 per share, and on the first day of trading, it surged to $139. ABNB stock touched a record high of $213 last February and is currently trading at $172, valuing the company at $110.5 billion, by market cap.
Let’s see if this extremely popular stock should be part of your growth portfolio in Q2 of 2022.
The bull case for Airbnb stock
Possibly the largest travel marketplace on earth, Airbnb is a platform where homeowners charge travelers to stay at their properties. These properties might be a small cottage nestled in the hinterland of India or can even be a multi-million-dollar mansion in California. Founded in 2008, Airbnb has managed to gain significant traction over the years and is now a household name among travelers.
In 2021, Airbnb booked 300 million nights and experiences on its platforms for customers, an increase of 56% year over year. While several governments relaxed COVID-19-related restrictions, the nights booked on Airbnb last year were still 9% lower compared to 2019 which indicates travel is yet to recover completely all around the world.
Airbnb reported sales of $3.65 billion in 2018 and $4.8 billion in 2019. However, in 2020, the top line declined to $3.37 billion due to the ongoing pandemic, while the company ended 2021 with sales of $6 billion, an increase of 77% year over year.
The massive uptick in sales allowed Airbnb to report an adjusted EBITDA of $1.6 billion, indicating an operating profit margin of almost 27%, despite facing headwinds from COVID-19.
The global travel and tourism industry accounts for a significant portion of global GDP and topped $9.2 trillion in 2019, providing Airbnb with enough room to expand its revenue and earnings going forward.
Further, it currently serves a small portion of the travel industry while competing with much larger players that include hotel chains and platforms such as Booking.com (NASDAQ: BKNG). However, Airbnb is well poised to benefit from pent-up travel demand which should result in robust growth in revenue and earnings going forward.
Analysts tracking Airbnb expect the company to increase sales by 31% to $7.9 billion in 2022 and by 21% to $9.52 billion in 2023. Comparatively, its bottom line is forecast to improve from a loss per share of $0.57 in 2021 to earnings of $2.05 per share in 2023.
The bear case for ABNB stock
While pent-up travel demand will be a key catalyst for Airbnb and its peers, there are several headwinds impacting the tourism sector right now. First, geopolitical tensions between Russia and Ukraine might reduce traveler footfall across Europe in 2022.
Second, most airline companies have hiked flight costs due to rising oil prices and to offset the cash burn experienced amid COVID-19.
Third, the threat of rising interest rates and higher inflation numbers might negatively impact consumer spending and delay travel plans. There is also the threat of another COVID-19 variant wreaking havoc while the possibility of an economic recession also looms large.
ABNB stock is currently trading 21% below record highs. But its price to forward sales multiple of 14x and a price to earnings multiple of 128x is still quite expensive.
There is a good chance that Airbnb stock will move significantly lower before gaining momentum in later months. However, Wall Street remains bullish on ABNB and has a 12-month average price target of $200 which suggests upside potential of 18%.