One of the largest companies in the world, Airbnb (NASDAQ: ABNB) is currently valued at a market cap of $100 billion. Given its massive size, will ABNB stock outpace the broader markets in 2022 and beyond? At first glance, the answer is a resounding yes, especially if we consider its total addressable market (TAM) of $3.4 trillion.
While it’s impossible for a company to capture the entire TAM, Airbnb has gained significant traction in the boarding and lodging segment. It has, in fact, been at the forefront of the global shift in consumer behavior as Airbnb now has four million people as hosts who rent out their houses to travelers all around the world.
The pandemic has been harsh for companies part of the travel and hospitality sectors. Consumer spending fell off a cliff as borders were shut and travel came to a screeching halt. Airbnb increased sales from $2.56 billion in 2017 to $4.8 billion in 2019. Revenue then fell to $3.37 billion in 2020 and has grown to $5.3 billion in the last four quarters.
While the COVID-19 pandemic is far from over considering low vaccination rates in underdeveloped nations as well as the emergence of new variants, Airbnb is well poised to benefit from pent-up travel demand in the upcoming years. Let’s see why I remain bullish on the long-term prospects of ABNB stock.
The bull case for ABNB stock
Airbnb collects a 14% service fee from guests and a 3% service fee from hosts. It already enjoys a first-mover advantage and continues to expand the number of houses available on the Airbnb platform. The company successfully provides homeowners an opportunity to monetize their real estate inventory. On average a host on Airbnb earns close to $8,000 a year which is quite a huge amount in most parts of the world.
While international travel remains subdued in 2021, the relaxation of COVID-19 related restrictions has resulted in strong demand across domestic routes. The accelerated shift towards the work-from-home trend has acted as a massive tailwind for Airbnb in the past year. In fact, workplace flexibility will be a long-term driver for ABNB making it one of the top stocks right now.
In Q3 of 2021, Airbnb reported sales of $2.2 billion which was an increase of 36% compared to the same period in 2019. The company also managed to generate $1.6 billion in free cash flow in the last 12-months, despite a negative free cash flow of $667 million in the December quarter of 2020. In case, Airbnb’s cash flows in 2021 touch $2.5 billion, it will be valued at a free-cash-flow to sales multiple of 40x which is not too expensive given its growth estimates.
What next for Airbnb investors?
Airbnb does not own any inventory and has an asset-light model, allowing it to benefit from high operating leverage. So, a small uptick in revenue will enable Airbnb to increase profit margins significantly.
While sales rose 36% in Q3 of 2021, compared to 2019, its net income more than tripled to $834 million in this period. Further, in 2019 its free cash flow stood at $194 million and despite a negative figure in Q4 of 2020, Airbnb’s metrics rose by 10x in the last year.
Analysts expect sales to rise by 74.6% to $5.9 billion in 2021 and by 24% to $7.3 billion in 2022. Comparatively, its bottom line is forecast to improve from a loss per share of $15.63 to earnings of $0.93 in 2022.
Analysts tracking ABNB stock have a 12-month average price target of $196 which is 35% above its current target price.
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