The vacation rental leader Airbnb stock had dipped toward the lows between the insider selling and persistent virus variants on more than one occasion. Yet, it persevered, rebounding on an Earnings beat in August, and it continues to climb, even in the face of the latest negative rating.
While the Q2 earnings looked good with GAAP EPS and revenue beating the expectations, it is hard to look at any 2020 comparisons due to the pandemic skew. Even so, management expects Q3 to set the high bar and be the strongest quarter on record so far.
The company is also looking to score some PR points, as CEO Brian Chesky announced a plan to house 20,000 Afghan refugees for free. He appealed to other business leaders to support this global initiative.
Yet, Airbnb seems to get a less bullish outlook from some institutions. First, Morgan Stanley issued a note with a price target of US$140, then Goldman Sachs issued a Sell rating with a price target of US$132, representing about 20% worth of downside from where it sits now.
Goldman analyst Eric Sheridan had some good things to say about Airbnb, calling the company a market leader in the space with attractive growth and margin expansion opportunities ahead of it.
In fact, the analyst expects compound annual revenue growth of 21% over the next five years and an adjusted profit margin of 32% in 2026. So for growth-oriented investors, Airbnb might be worth purchasing using just your spare change.
But at the current valuation, Sheridan thinks Airbnb’s risk/reward tradeoff tilts negative due to the volatile travel environment going forward, a mature end market, and increasingly intense competition.
While these are isolated examples and the overall coverage remains bullish, institutional support will be important to sustain the high market cap, as institutional ownership is currently at only 32.5%.
Examining the numbers to profitability:
The company’s loss has recently broadened since it announced a US$4.6b loss in the full financial year, compared to the latest trailing-twelve-month loss of US$4.9b, moving it further away from breakeven. The most pressing concern for investors is Airbnb’s path to profitability – when will it break even?
The consensus from 33 of the American Hospitality analysts is that Airbnb is on the verge of breakeven. They expect the company to post a final loss in 2021 before turning a profit of US$317m in 2022.
Therefore, the company is expected to break even just over a year from now. To meet this breakeven date, we calculated the company’s rate to grow year on year.
It turns out an average annual growth rate of 43% is expected, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable later than expected.
Airbnb Short (Sell)
Enter at: 160.46