San Francisco’s Airbnb, Inc. (ABNB) garnered significant investor attention when it made its stock market debut in December last year. The company runs a platform that facilitates temporary accommodation for travelers worldwide. Its shares have gained 14.5% in price so far this year thanks to the company’s business revival on the elimination of travel bans in the second half of the year.

However, fears surrounding the COVID-19 omicron variant have caused the stock to decline 18.9% in price over the past month. Because the new variant is spreading fast in the United States, consumers might cancel or defer their holiday plans, affecting the company’s revenues in the coming months. So, ABNB’s near-term prospects look uncertain.

Here is what could shape ABNB’s performance in the near term:

Rising Uncertainty Due to the New Variant

According to reports, the omicron variant, which is spreading  worldwide, could precipitate another wave of fear and sickness, threatening to overburden healthcare workers who are already dealing with the Delta variant cases and disrupt holiday plans for the second consecutive year. More than 75 countries have confirmed cases of omicron, and 36 states have detected the variant in the United States. The Centers for Disease Control and Prevention reported that approximately 3% of COVID-19 cases in the United States are omicron. Though the government has reassured the nation that the economy would not be subject to another shutdown, rising travel restrictions and other mandates could negatively impact ABNB’s revenues in the coming months.

Impressive Financials

For the third quarter, ended September 30, 2021, ABNB’s revenue increased 66.7% year-over-year to $2.24 billion. The company’s Nights and Experiences Booked rose 29% year-over-year to $79.70 million. Its net income came in at $833.89 million, up 280.2% year-over-year. The strong recovery in Nights and Experiences Bookings, combined with significantly higher average daily rates, helped its gross booking value increase 48.1% year-over-year to $11.89 billion.

Mixed Profitability

ABNB’s 79.9% gross profit margin is 122.5% higher than the 35.9% industry average. Also, its $1.67 billion in cash from operations is 776% higher than the $190.6 million industry average.

However, ABNB’s 0.5% trailing-12-months asset turnover ratio is 54.6% lower than the 1.1% industry average. Furthermore, its 0.5% trailing-12-months CAPEX/Sales is lower than the 2.5% the industry average. 

Consensus Rating and Price Target Indicate Potential Upside

Of the 27 Wall Street analysts that rated ABNB, 13 rated it Buy, and 13 rated it a Hold. The 12-month median price target of $197.77 indicates a 17.6% potential upside. The price targets range from a low of $140 to a high of $250.

Premium Valuations

In terms of forward Price/Book, the stock is currently trading at 25.18x, which is 607.9% higher than the 3.56x industry average. Also, its 16.82x forward EV/Sales multiple is 1078.4% higher than the 1.43x industry average Furthermore,  ABNB’s 17.76x forward Price/Sales is 1410.8% higher than the 1.18X industry average.

POWR Ratings Reflect Uncertainty

ABNB has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ABNB has a D grade for Value. The company’s higher than industry valuation is in sync with the Value grade. In addition, the stock has a B for Sentiment, which is consistent with favorable analyst estimates.

Of the 20 stocks in the D-rated Travel – Hotels/Resorts industry, ABNB is ranked #10.

Beyond what I have stated above, one  can view ABNB ratings for Growth, Stability, Momentum, and Quality here.

Bottom Line

Strong travel recovery and stellar third-quarter results helped ABNB regain momentum and reach pre-pandemic operational levels. However, as fears related to the omicron variant take center stage, the company’s near-term prospects look uncertain. In addition, given its premium valuation and mixed profitability, we believe investors should wait for its prospects to stabilize before investing in the stock.

How Does Airbnb Inc. (ABNB) Stack Up Against its Peers?

While ABNB has an overall C rating, one might want to consider its industry peers Travel + Leisure Co. (TNL), Choice Hotels International Inc. (CHH), and Target Hospitality Corp. (TH), which have an overall B (Buy) rating.

Note that CHH is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

ABNB shares were trading at $163.49 per share on Thursday morning, down $4.65 (-2.77%). Year-to-date, ABNB has gained 11.37%, versus a 27.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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