Airbnb has become a household name in the travel and accommodations world, but despite its popularity, the company’s stock hasn’t been shining in 2024. Shares are down 2% so far this year, even though major market indexes have been climbing. Trading at $133 per share, the stock is nearly 40% below its all-time high. So, you might be wondering: Is now a good time to invest?
Strengths and Profitability
Airbnb operates a powerful platform that connects millions of hosts and travelers globally. In the third quarter alone, there were 123 million nights and experiences booked. This massive scale creates strong network effects, giving Airbnb a significant edge over competitors.
Because of these network effects, it’s tough for new players to enter the market—they’d need to attract both hosts and travelers at the same time, which isn’t easy without an existing user base. With 5 million hosts and 8 million active listings across 220 countries, Airbnb has become the go-to choice for many people, reinforcing its dominant position.
Financially, Airbnb has been consistently profitable. In the first nine months of 2024, it reported $2.1 billion in operating income with a 25% margin. The company also generated $1.1 billion in free cash flow in the third quarter, which it used to buy back shares.
Challenges Ahead
However, Airbnb’s rapid growth has started to slow down. After impressive revenue growth of 77% in 2021 and 40% in 2022, sales growth dropped to 12% in the first nine months of 2024. This slowdown suggests that the high growth rates of the past might not continue, so investors may need to adjust their expectations.
Airbnb also faces potential regulatory hurdles. Its widespread presence has led to pushback from some local communities and businesses, leading to discussions about stricter rules for short-term rentals. While the company doesn’t rely heavily on any single city for revenue—no city accounts for more than 2%—changes in key markets could still have significant impacts.
Valuation Considerations
Even though the stock price is well below its peak from February 2021, Airbnb’s valuation remains high. The forward price-to-earnings (P/E) ratio is 33, which seems steep, especially when free cash flow is expected to grow at only about 6% annually between 2024 and 2026.
Investment Outlook
Airbnb has a lot going for it: strong network effects, global reach, and solid cash flow. But there are also concerns like slowing growth, potential regulatory issues, and a high valuation. It might be worth keeping an eye on the stock and waiting for a more favorable time to consider investing, rather than jumping in right now.
