Is Airbnb Setting Up To Rally 38%, As Analysts Are Forecasting?

Key Points

• Shares advanced 7.06% in the past week and 12.88% in the past month, following a one-year wallopping as investors fretted about inflationary headwinds. 
• The company topped views in the third quarter but warned about headwinds particularly affecting cross-border travel.
• Airbnb's profit margins have been steadily increasing, a good sign for growth investors.
• The company has been buying back its own shares, a signal that management believes the stock is undervalued. 

Short-term rental marketplace Airbnb Inc. NASDAQ: ABNB has attributes of both a growth and value stock, at least for the moment. Does that mean it’s one to keep an eye on or even determine whether it’s worth a buy? 

Shares have advanced 7.06% in the past week and 12.88% in the past month. The stock declined in the past two sessions along with the broader market, as investor hopes faded that the Federal Reserve would slow the pace of interest-rate increases. However, Airbnb holds well above its December 28 low of $81.91. 

Among Airbnb’s growth-stock characteristics, the company has been at double-digit rates in recent quarters. Analysts are eyeing a return to profitability when the company reports fourth-quarter and full-year results next month. Wall Street expects 2022 earnings of $2.58 per share, up from a loss of $0.57 per share in 2021. 

For the quarter, analysts are eyeing a net income of $0.25 a share on revenue of $1.85 billion, increases of 213% and 21%, respectively. That signals that Wall Street has conviction in the company’s growth case.

MarketBeat earnings data for Airbnb show the company topped analysts’ views in the past seven quarters. 

Airbnb’s price-to-earnings ratio is 42, well into growth territory. While that may scare off some investors who believe Airbnb may be priced to perfection at that level, there’s also a case that the stock still has room to run. 

Growing Profit Margins

The company has also increased its profit margins in recent quarters. In addition, Airbnb has been repurchasing its shares, a sign that management believes the stock is undervalued. Share repurchases are a way companies in growth mode can return cash to shareholders rather than pay a dividend. 

Adding to the growth case, analyst data compiled by MarketBeat show a rating of “hold” on the stock, although the price target is $137.19, an upside of 38.36% above where the stock is currently trading. 

On the value side, the stock was wallopped in 2022, posting a one-year decline of 34.64%. Much of that was due to inflation squeezing the budgets of would-be travelers and possibly some bad publicity regarding crime, high prices, and requirements for guests to own housecleaning. Hosts, too, have been taking to social media and the mainstream press to vent their complaints about the company’s response to guests who cause damage or refuse to leave. 

Sensitive To Macroeconomic Factors 

However, on a more quantifiable level, investors continue to fret that Airbnb stock remains sensitive to macroeconomic factors, including the looming threat of inflation. 

When it reported third-quarter results in early November, the company expected revenue between $1.80 billion and $1.88 billion in the fourth quarter. That’s below the consensus midpoint of $1.85 billion, noted above. 

Despite beating Wall Street views in the third quarter, shares gapped down 13.43% on that disappointing guidance. This line was almost buried in the shareholder letter accompanying the quarterly report: “As the impact of the pandemic recedes, but macro conditions persist, we expect a continued, albeit choppy, recovery of cross-border travel to be a further tailwind to future results.” 

That’s certainly a mixed bag of optimism and pessimism but indicates the company anticipates slow growth in international travel. 

Can Growth Continue?

While that doesn’t directly contribute to the company’s status as a value-like stock, its chart certainly does. Airbnb is in no way a traditional value stock. Still, if it can continue growing out of the pandemic, inflation, and a possible recession, there could certainly be a significant upside. 

Airbnb’s most prominent competitor is Expedia Group Inc. NASDAQ: EXPE, which owns vacation rental specialist VRBO. Expedia, which also serves as a full online travel agent and packager, doesn’t offer an apples-to-apples comparison to Airbnb. Still, its shares have taken a beating for many of the same reasons Airbnb did.