Airbnb with Nobias technology: Can This Travel Stock Overcome Pandemic Headwinds?
Back in June, before the rise of the Delta variant in the United States, Brian Withers, a Nobias 5-star rated analyst, recently discussed AirBnB in a Motley Fool podcast in which he and his colleagues highlighted the strong demand that the reopening of the economy has created for the travel/leisure company.
Regarding demand, Withers said, "Airbnb will have a great current quarter. Everyplace I want to travel is booked full on Airbnb, revenge travel is unreal this year. Outdoorsy, Airbnb for RVs will be a great buy for them. RVs on Outdoorsy are also fully booked everywhere." He highlighted the fact that he’s had to change recent trip plans for his family because of a lack of available lodging across numerous rental platforms.
Brian Stoffel, a Nobias 3-star rated analyst, who was also on the call, mentioned that, “Anecdotal evidence can get you in trouble as an investor.” That’s true. Investors should focus on the macro data when it comes to due diligence because that is what paints the most accurate picture.
Trevor Jennewine, a Nobias rated 4-star analyst who also writes for the Motley Fool highlighted the macro data in the travel/leisure space back in June as well, comparing Airbnb’s operational results to those of its largest peers in the hotel industry, which showed ABNB’s relative strength as far as revenue resiliency goes.
Jennewine looked at the 2019 full-year revenue produced by Airbnb, Hyatt, and Hilton, and compared that full-year figure to the trailing twelve month results starting at Q1, 2021. He notes that Airbnb’s comparative sales had fallen by 23%. Hilton’s sales were down 65% on a relative basis. And Hyatt was the worst performer, seeing its relative top-line performance down by 70%.
Jennewine concluded that, “Airbnb's resilience gives the company a tremendous advantage, but that competitive edge is compounded by the flexibility afforded to travelers. Guests can book stays in big cities, rural towns, and everywhere in between. Not only that, but Airbnb lists unique lodgings like adobes, castles, yurts, and treehouses. Put another way, Airbnb is the gatekeeper to a multitude of unique experiences. That should be a powerful growth driver as the travel industry rebounds.”
The Motley Fool contributors on the podcast agreed. They discussed their belief that the pandemic has changed consumers’ spending habits and highlighted why this likely bodes well for Airbnb. Along those lines, Withers said, “I actually think this is one of those things like Etsy has picked up a ton of customers throughout the coronavirus as people have gone on and tried it. I think Airbnb will be the same thing, is people will start to see the benefits of staying in somebody else's place.” He continued, saying, “I think it gives you more space, it gives you more options. It certainly as a family, we traveled with our family and our dog, it allows us to take our dog with us. It's just a great thing all around. I think that hotels will continue to be for business travelers, but this will be for reunions and people, families traveling and whatnot, will really gravitate toward the Airbnb way to travel.”
And, while this is obviously a speculative statement at this point in time, it does paint a bullish outlook for the stock, assuming that we don’t see another strong wave of COVID which puts people back into stay-at-home mode. In June, the re-opening trade was in full effect and it appeared like travel regulations, mask mandates, and social distancing may soon be a thing of the past. However, a lot has changed during the last month or so and now, with hospitals throughout various areas of the country filling back up, creating a shortage of beds in ICU units, it appears as though those who went all in on the re-opening trade got a bit ahead of themselves.
Airbnb reported its second quarter earnings on August 12th, 2021 and at first glance, it appears that the company lived up to Withers’ high expectations. Airbnb beat analyst consensus estimates on both the top and bottom lines. The company’s GAAP EPS came in at -$0.11/share, which was $0.32/share above the consensus target of -$0.43. ABNB’s sales totaled $1.34 billion during the quarter, which represented growth of 300% on a year-over-year basis.
Granted, Q2 of 2020 was the worst quarter than travel and leisure stocks have seen in decades, due to the onslaught of the COVID-19 pandemic throughout the spring and summer of 2020. But, even though the strong beat was expected, what appears to have surprised many analyst is the fact that Airbnb’s adjusted EBITDA came in at $217 million, which was not only well above the negative $397 million EBITDA figure that the company produced in Q2 of 2020, but it was above the negative $43 million bottom-line figure that Airbnb produced during Q2 on 2019 (prior to the COVID-19 pandemic).
During the company’s second quarter shareholder letter, Airbnb management offered bullish commentary saying, “Our Q2 results reflect the success of our efforts to prepare for the travel rebound, as well as our continued operating discipline. Q2 Nights and Experiences Booked nearly matched pre-COVID levels; GBV and revenue exceeded pre-COVID levels; net loss improved; Adjusted EBITDA was positive and demonstrated significant margin expansion; and active listings reached their highest level yet. In fact, in the last few weeks, we had our biggest night ever in the U.S. and our biggest night globally since the pandemic began, with more than 4 million guests staying at an Airbnb listing.”
Furthermore, in the “Outlook” section of the letter, Airbnb management highlighted future growth prospects saying, “In the near term, we believe revenue and Adjusted EBITDA provide clearer indications of quarterly performance. While the COVID-19 pandemic creates ongoing uncertainty for our future results, we expect Q3 2021 revenue to be our strongest quarterly revenue on record and to deliver the highest Adjusted EBITDA dollars and margin ever.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Management seemed very excited about the future and Wall Street analysts have hopped on board that bullish train. Since the company’s Q2 report, we’ve seen three Wall Street analysts who’re rated 4 or 5 stars by the Nobias algorithm update their price targets on ANBN shares, all of which are much higher than the stock’s current price. Stephen Ju of Credit Suisse, who is rated 5 stars by our algorithm, updated his price target to $167. Ronald Josey, of JMP Securities, who is rated 4 stars by our algorithm, updated his price target to $180. Bernie McTernan of Needham, who is rated 4 stars by our algorithm, updated his price target to $200.
Today, ABNB trades for $143.69. Overall, the average recent update was $171.75, which implies upside potential of 16.3%. Right now, looking at the overall community of credible authors tracked by the Nobias algorithm, we see that the average analyst price target is very similar, at $172.67.
Even though COVID-19 fears remain in place, 85% of the credible authors that we track express a “Bullish” opinion on shares. And therefore, it appears that Airbnb remains an attractive option for investors who’re looking to increase exposure to the travel and leisure (or more specifically, the lodging) area of the market.
Disclosure: Nicholas Ward has no position in any stocks mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.