Vacation rental company Airbnb, Inc. (ABNB) operates a platform that facilitates the arrangement of stays, vacations and experiences. It connects hosts and guests online or through mobile devices. ABNB made its market debut on December 9, 2020, at a time when the sector had been battered by reduced-travel trends due to the global public health crisis.

Closing yesterday’s trading session at $134.75, ABNB’s stock is trading 38.7% below its $219.94 all-time high, which it hit on February 11. Furthermore, the stock has lost 23.1% over the past month and 8.2% so far this year.

Although the global rollout of COVID-19 vaccines and the easing of some travel restrictions have helped the company recover from its  revenue decline last year, it recorded significant losses due to its repayment of term loans in the last reported quarter. In fact, we don’t think its stock’s current valuation is justified given its high losses and expenses. So, we don’t think ABNB  can easily capitalize on the vacation rental rebound.

Here is what we think could influence ABNB’s performance in the near term:

Slow Recovery of the Travel Industry

The travel industry has made significant progress after suffering  a major blow caused by the pandemic last year. As the U.S. COVID-19 vaccination drive accelerates and the restrictions ease, it certainly implies  a rebound for the industry. However, while leisure travel within the country may be recovering slowly, it may take several years for business travel to return to pre-pandemic levels.

In a recent interview with Yahoo finance, ABNB’s CEO Brian Chesky said, “Business travel as we knew it is never fully coming back.” Since corporate travel makes up a significant part of its  business, this gloomy prospect could leave a gaping hole in the company’s revenues. After having suffered mounting losses, it could still be months before ABNB starts generating meaningful profits.

Unimpressive Financials and Profitability

ABNB’s total revenue was $887 million, representing a 5% year-over-year increase in the first quarter, ended March 31, 2021. However, the company’s net loss came in at $1.2 billion, compared to $341 million in the first quarter of 2020. Its net loss also includes a $377 million loss due to  the payment  of debt related to the repayment of ABNB’s term loans. Also, its adjusted EBITDA came in at negative $59 million over this period. Although the company’s operations and support costs decreased by 16% year-over-year, its product development expense increased by 40% year-over-year. Also,  its general and administrative expenses increased by 107% year-over-year to $190 million over this period.

The company’s 0.4% trailing-12-month asset turnover ratio is 62.9% lower than the 1% industry average. Also, the company’s trailing-12-month net income margin and EBITDA margin are negative 158.2% and 95.1%, respectively. And its  trailing-12-month ROA and ROE are negative 43.9% and 437.9%, respectively.

Consensus Price Target Indicate Potential Upside

Of the 22 Wall Street analysts that have rated the stock, six rated it Strong Buy, 12 rated it Buy and four rated it Hold. Currently trading at $253.37, analysts expect the stock to hit $279.52 in the near term, indicating a 10.3% potential upside. Their price target ranges from a low of $240 to a high of $325.

Lofty Valuation

Currently, ABNB looks extremely expensive. In terms of trailing-12-month Price/Sales, the stock is currently trading at 14.44x, which is 797.3% higher than the 1.61x industry average. Also, its 14.58 forward EV/Sales multiple  is 832.6% higher than the 1.56 industry average. And the company’s 187.61x trailing-12-month Price/Cash flow  is significantly higher than the 12.44x industry average.

POWR Ratings Reflect Bleak Prospects

ABNB has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. ABNB has a C grade for Quality. This justifies the stock’s weak profitability.

The company has a D Value grade, which is reflective of its premium valuation. Also, it has a C grade for Growth, in sync with ABNB’s gloomy growth prospects.

In addition to the grades we’ve highlighted, one can check out additional ABNB ratings for Sentiment, Stability and Momentum here. ABNB is ranked #13 of 19 stocks in the F-rated Travel – Hotel/Resorts industry.

Click here to view the top-rated stocks in the Travel – Hotel/Resorts industry.

Bottom Line

Even though widespread global vaccinations have helped ABNB witness an improvement in its business, the company remains unprofitable. It recorded $229 million of stock-based compensation expense during the first quarter of 2021, and its net loss has tripled because of debt repayments and restructuring costs. Given that business travels, which comprises the largest source of hotel revenue, is expected to  continue to remain significantly below the usual levels for the foreseeable future, the company’s growth prospects look bleak. So, we think ABNB is best avoided now.

ABNB shares were trading at $137.15 per share on Thursday morning, up $2.40 (+1.78%). Year-to-date, ABNB has declined -6.57%, versus a 12.81% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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