US stocks have been on the agenda this week as reporting season rolls on. This week we’ve had earnings from eBay (EBAY), Walt Disney (DIS), Palantir (PLTR) and Airbnb (ABNB). It was close but our Twitter followers have plumped for the online travel agency ahead of the others.
Airbnb is relatively new to the stock market, floating in late 2020 just as the United States started to ease coronavirus restrictions. The company, which started as a house swap website in 2007, has defied the many challenges faced by the travel sector in the Covid-19 era by rising in value in a short time. At IPO the company was worth $47 billion but is now valued at just shy of $100 billion. This upwards trajectory has put the stock into 1-star territory, according to Morningstar analysts, who assign the shares a fair value of $84. Analyst Dan Wasiolek says that this fair value could be raised to $90 after upbeat second quarter results, but this is still significantly below the current price around $150. While Airbnb’s revenues grew to $1.3 billion in Q2, it’s still loss making as a public company, losing $68 million in the period (compared with a loss of more than $500 million in Q2 2020).
Airbnb Share Price Chart Since IPO
Global travel industry shares have been volatile since the pandemic started in early 2020 – a heavy sell-off was followed by a relatively swift rebound as the vaccines started to be produced and rolled out. Now that rally has faded as coronavirus cases have started to rise again and shares across the board have slipped back. Country by country restrictions have not helped the narrative of a co-ordinated comeback for the industry. But Airbnb is still in a strong position, according to Wasiolek, for a number of reasons. US travellers who would ordinarily take a cruise or fly to Europe are now embracing the idea of a “staycation”, and that has been a boon for alternative accomodation providers like Airbnb. US workers have also been moving away from cities and renting houses and apartments via Airbnb while remote working, although that effect is fading as some companies recall workers to the office. In the last three months, bookings and prices were higher than before the pandemic, although the company says that booking volumes are starting to slow down.
In the medium term, Morningstar’s Wasiolek thinks that Airbnb, because of its size, can increase its market position as smaller rivals fall by the wayside as the industry shakes out in the next few years. Airbnb’s strong market position is not unassailable, however. Rivals Expedia (EXPE) and Booking.com (BKNG) are also broadening out from their flights and hotels offering to muscle in on Airbnb’s territory. More worrying for Airbnb investors perhaps is that competitors outside the industry are starting to eye the business model closely. “Focused entry from Google, Facebook, Alibaba, Amazon, and others could double the current handful of players that have dominant scale, leading to a meaningful impact on profitability. That said, replicating Airbnb’s network would require significant time and expense,” says Wasiolek. Still, building an equivalent network to Airbnb’s will costs these companies money and time, he says.
From an ESG angle, the Airbnb model has been criticised for its impact on cities, particularly in driving up housing costs for existing residents. (My colleague Ruth Saldanha looked at the social cost of Airbnb in detail when it floated in late 2020.) For every successful tech business, the threat of regulation is ever present. On a practical level this means more admin for “hosts” to deal with and possible restrictions on how many days a flat or house can be rented out. Airbnb has addressed some of these issues in recent shareholder letters, saying it is committed to "safe and responsible travel". For example, having parties is banned until at least the end of summer 2021 in all locations.
According to ratings agency Sustainalytics, Airbnb has a Medium ESG risk rating, and is considered weak in terms of management of employees.
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