With worldwide recognition and an IPO that stunned in December of 2020, but a still-unprofitable business model, Airbnb is a hotly contested stock. Bulls say it’s positioned to grow, and bears say it’s only downhill from here. What’s the real story?
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As Airbnb prepares for a newly-vaccinated travel season, it might be tempting to buy this stock while it’s low relative to its all-time high in February of 2021. Though the stock is still debated on Wall Street, our verdict is this: you shouldn’t buy Airbnb right now.
Why? Bulls claim that Airbnb is positioned to capitalize on the tremendous growth of the travel industry that is likely to commence in the warm months of 2021 with increasingly vaccinated populations and travel-hungry travelers.
At the same time, though, Airbnb stock has been shrinking since its all-time high in February 2021, and though Airbnb has rolled out updates that have heralded momentary surges in stock price, the trends show that Airbnb’s stock will continue to drop over the coming months.
With a low relative strength rating and an abysmal earnings per share rating, it’s probably best to skip that ABNB buy for now.
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What is Airbnb?
Airbnb is a company whose name will be familiar to any and all that have sought lodging during travel. Their disruptive business model is to allow home and condo-owners to turn their own properties into short-term rentals.
A San Francisco start up with a “little guys” origin story to back it up, Airbnb has exploded across the world since its innocuous 2007 inception.
Although Airbnb may have been the first to the table, competition for the short-term rental market has increased dramatically, seeing the startup of plenty of competing companies.
This is coupled with a guest-experience emphasis from the hotel industry, in which studios are leased out in a fashion similar to that of Airbnb.
Since its IPO in December 2020, Airbnb’s stock expanded massively from $68 a share to just over $216 on February 11, 2021. After these impressive gains, however, the stock began to slide.
In March of 2021, Airbnb announced a string of over 100 updates to improve customer experience. Investors liked this news, and Airbnb climbed again 6.3%. After this climb, however, the stock has begun to slide before sitting at the writing of this article at $149.35 a share.
Despite the fact that Airbnb isn’t profitable (nor has it ever been), bulls claim that Airbnb has just now reached a critical mass to begin converting its size into profit.
- With a slew of new benefits and over 4 million hosts, Airbnb is poised to take advantage of a recently-vaccinated, re-globalizing world desperate for travel.
- In addition to its ubiquitous presence in the travel world (with representation in 220 countries to date) and household-name recognition, Airbnb posts as much as 90% of its traffic through organic search directly to its platform.
- Bulls in favor of growth investing will be comfortable with the fact that Airbnb isn’t yet profitable, as it expects to grow by up to 40% in the next year. Indeed, Airbnb is currently posting above its 21-day exponential average, a bullish move that is keeping investors holding onto their stock.
- Last week, Airbnb surged 1.3% and closed the day just out of range of its 50-day line for the first time in 4 months.
- Mutual funds are increasingly investing in Airbnb, with almost 100 more mutual funds invested in Airbnb after Q1 of 2021, compared to Q4 2020.
- CANSLIM, a 7-point investing methodology backed by long-term research in the field, points to a stock’s ability to attract mutual funds as one of the key signs to its long term success.
- The increase of online travel bookings that has been occurring in the past few years is expected to increase over the next 10 years. Increased online usage will account for that, as well as an expanding host pool.
Airbnb, with its far-reaching familiarity and present dominance of the online travel booking industry, is well-positioned to increase its growth and eventually turn a profit.
Airbnb has plenty of disadvantages to its platform that may be expounded by further competition and Google’s changing SERP policies. Furthermore, an Airbnb is more expensive to operate than a traditional hotel and other travel verticals.
- As the alternative accommodation industry is relatively young, companies like Airbnb are facing further regulations as countries adapt to this new form of business.
- Booking and Expedia also plan to expand awareness and supply of alternative accommodation options, and both countries have the capital to pose as major competitors to Airbnb.
- Finally, Google continues to put paid ads in better positions on Search Engine Results Pages, meaning the up to 90 percent of organic search traffic Airbnb currently enjoys will likely dry up slightly, forcing Airbnb to spend more on advertising.
- Airbnb currently shows a relative strength rating of 50. While this isn’t bad (the scale is to 99), you tend to want to invest in companies with relative strength ratings of 85 or more. Weaker relative strength can mean significant dips in stock value.
As far as earnings per share, Airbnb is thought to go down before it goes up. For 2021, the current estimate is a growth of -2.01 per share, an estimate confirmed (though more conservatively) by the Wall Street Journal.
There’s a lot to like about Airbnb: it’s at the forefront of its industry and looks to be ready to grow this year and next. Mutual funds continue to invest in Airbnb, and Airbnb itself continues to roll out updates that investors tend to be pleased with.
For now, however, Airbnb’s stock price relative to its 50-day line, along with its relative strength rating and earnings per share rating, suggest that Airbnb isn’t a great stock to buy now.
In all likelihood, it will continue to sink for a while, possibly until the end of 2021. Investors should set their sights on other stocks for the time being.
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