One of the most highly touted IPOs in recent history, Airbnb (NASDAQ:ABNB) has been on quite the ride. ABNB stock has moved significantly higher post-IPO amid positive sentiment about the long-term growth potential of the company.
More recently, ABNB stock rose dramatically following the company’s Feb. 25 earnings call. Since then, shares have corrected around 16%.
This begs the question: is this recent dip a buying opportunity? Or should investors steer clear until we have more clarity into when this pandemic will end?
ABNB Stock: One of the Best Reopening Plays Today
I’m in the former camp. I think ABNB stock provides investors with a “forever” hold. This isn’t a cheap stock by any stretch of the imagination. Investors are paying a massive premium right now for a piece of this company. However, I think that’s for good reason.
Similar to other tech peers that find their corporate names used as a verb, Airbnb is ubiquitous. It’s the market leader in an industry that it essentially created. Airbnb has insulated itself with a pretty decent moat, and innovated its way to this position.
Additionally, I think investors need to focus on post-pandemic growth. We’re all trudging through the pandemic the best we can right now. With mass vaccinations expected to accelerate globally, there’s newfound hope discretionary travel will take off once again.
Indeed, I find myself in what I think is the majority of investors who believe vacation travel will absolutely skyrocket once this pandemic is under control. When border restrictions are lifted, and international travel is once again encouraged, folks will be jumping on planes faster than we’ve ever seen in the past. Airbnb is well-positioned to benefit from this key catalyst.
Total Addressable Market Huge
According to Airbnb’s initial prospectus, the company estimates it’s total addressable market at $3.4 trillion.
That’s right. The company’s estimate breakdown is as follows:
- $1.8 trillion for short-term stays
- $210 billion for long-term stays
- $1.4 trillion for experiences
This absolutely massive number has incited a ton of skepticism, speculation, and discussion in recent months.
Some believe these numbers are simply too big to be real. After all, Airbnb’s total revenue for 2020 was $3.4 billion. That’s a total opportunity equivalent to 1,000-times the existing sales of the company.
Others believe these numbers are accurate, or at least reflect the total gross addressable market. Investors need to keep in mind that Airbnb earns a 10% transaction fee on gross revenues. This would translate to a total net addressable market of $340 billion, or roughly 100-times existing sales. Now that’s more believable.
I’m in the camp that believes these numbers aren’t as important right now as investors might think. The fact is, Airbnb is scraping the surface of what’s possible in terms of value capture in this sector. Whether it’s 1% or 0.1% of the total addressable market — there’s a lot more market share out there to grab.
Indeed, Airbnb is on the cutting edge of a online technological shift in a traditional brick-and-mortar sector. As we’ve seen with other online players revolutionizing industries once thought would remain stable forever – think Amazon (NASDAQ:AMZN) — hefty valuations are par for the course. At least, for the first few (or potentially dozen) years.
Valuation Steep, but ABNB Stock Seems to Have Support
A valuation of 32-times existing sales is one investors are forced to grapple with right now.
However, some seem to believe this multiple is really not as rich as it may seem.
Indeed, if a post-pandemic boom takes hold, we could expect to see some absolutely astronomical revenue growth from Airbnb. Economic improvement should shore up the housing market, and folks will be renting out their spare bedrooms, condos, and beach houses like no tomorrow.
This is a pretty rose-colored glasses view of the situation. However, I’m an optimist.
Things could turn sour if we get a series of additional pandemic waves as variants take over. The housing market could crash, interest rates could go up, and the economy could implode, forcing folks to avoid vacation travel because they can’t afford it.
It all depends which view you take.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.