Bears Aren't Deterred By Airbnb's $24 Billion Gain

A stellar start to 2023 has seen Airbnb Inc. put up stellar earnings and its stock price has been on the rise, but not all analysts are on board with its prospects.

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Home-rental company AirBnB has received five sell or equivalent recommendations, more than any other Nasdaq 100 company after Intel Corp., Tesla Inc., and Cognizant Technology Solutions Corp. Moreover, based on Trade Algo data, the percentage of sell ratings for the company is the highest it has been in more than two years at almost 11%.

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For bears, the more important concern is not the company's performance so much as its frothy valuation, which is what frightens them. This month's results showed that travel demand was running at a high level and profitability was improving, which stoked a rally in its shares, which have surged 47% this year, adding about $26 billion worth of market value to the company. This has pushed Booking Holdings Inc.'s valuation relative to a measure of its earnings even further above peers such as Expedia Group Inc. and Booking Holdings Inc.

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“We don't know how much further the stock can rise,” said Matt Maley, Miller Tabak + Co.'s chief market strategist.

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Brian Nowak, an analyst with Morgan Stanley in New York, also holds this view, even after he raised his price target on the shares by 25% to take into account raised earnings estimates this month, in order to maintain an underweight stance on the shares. It is expected that the stock "will continue to grow at a faster pace than it already is," he wrote in a report.

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In the opinion of Miller Tabak's Maley, Airbnb is traded more like a tech stock than its closest peers, which might partially explain its outperformance given this year's market-beating rally in the Nasdaq 100 index.

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The same can probably be said about Airbnb's stock valuation, with the company trading at an enterprise value to estimated earnings before interest, taxes, depreciation, and amortization ratio of 21 times, which puts Airbnb far ahead of Booking, which is trading at 13 times, and Expedia, which is trading at 7 times, according to Trade Algo data.

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“To be honest, I am not so sure that it deserves to be traded that way,” Maley said.

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Although the shares aren't as expensive as they once were, coming off the back of a 49% slump in 2022, the shares aren't as expensive as they once were. It is apparent that Airbnb, which benefited greatly from the changes in work and lifestyle caused by the pandemic, is starting to see some of the trends that it has benefited from — such as people renting large rural homes for long periods of time — reverse as travelers choose to stay in big cities and travel abroad for shorter periods of time.

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The company has been driving profitability by reducing costs, but analysts are concerned that a slowdown in the number of nights booked and an increase in average daily rates may put pressure on sales growth and margins in the coming year as a result of the slowdown in nights booked.

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It is important to note that rates "across the industry are extremely elevated from pre-Covid levels, whether they are hotels or alternative accommodations," said Nicholas Jones, an analyst at JMP Securities who has a market performance rating on the stock.

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It is estimated that revenue growth will decrease from 40% last year to 14% in 2023 based on the average of estimates compiled by Trade Algo.

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The shares have come a bit too far too fast, according to Thomas Martin, senior portfolio manager at Globalt Investments.

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“If you weren't in the stock, you'd look for an entry point after it corrected,” he stated.

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