Here is the next stock that I will buy
The onset of the coronavirus pandemic has reduced demand for travel around the world. With a potentially fatal virus in circulation, fewer people were interested in getting on planes, trains and buses and visiting new places. As a travel facilitator that operates around the world, Airbnb (NASDAQ: ABNB) as a result, has experienced a decline in customer demand and revenue.
What has impressed me, however, is the rebound in Airbnb activity since the administration of COVID-19 vaccines gained momentum. This recovery, the massive size of the market Airbnb serves and a fair valuation are the main reasons Airbnb will be the next stock I buy.
Airbnb has a trillion dollar market opportunity
In its third fiscal quarter ended September 30, Airbnb reported revenues 36% higher than the same quarter in 2019. Given that the coronavirus is still circulating in large numbers, this could be a sign of strong demand. of travel. If the world can continue to protect themselves against COVID-19 through vaccines and other means, it could spark even more demand for global travel.
In addition, the Airbnb platform offers travelers more options than traditional hotels. People can choose large houses or small rooms. And the rise of remote working could be a long-term tailwind for Airbnb. Typically, people staying somewhere for long periods of time prefer amenities that only a home can provide, which could lead them to choose Airbnb more often than hotels due to a more solid supply of desirable accommodations at prices. reasonable.
Indeed, you can get hotel rooms that provide you with similar accommodation at home, such as a washer and dryer and a kitchen with refrigerator, microwave and oven. However, it will cost a traveler a lot more than renting a small room on Airbnb from a host who makes these services available.
It is important to note that Airbnb management has made efforts to adjust the business to operate more structurally more efficiently. Airbnb has cut some variable costs, cut marketing spend, and cut fixed costs across the board. Management’s efforts are paying off: In the third quarter, net profit jumped 213% compared to the same quarter in 2019. This means that its revenues accelerate with the progress against COVID-19, profits could grow at the same time .
And Airbnb has a long avenue for growth. According to Statista, the global hotel and resort industry was worth $ 1.47 trillion in 2019. To put that number into context, Airbnb made $ 4.8 billion in revenue in 2019. If it can. continue to take market share, it has the potential to become a business. which can generate multiples of the turnover it generated in 2019.
Are Airbnb shares expensive?
The relatively fair valuation of Airbnb makes the investment more attractive to me, given the huge opportunity. Airbnb trades at a price-to-free cash-flow and price-to-sell ratio close to the lowest points of the year. This is despite its proven efficiency improvements, a robust recovery from the ravages of the pandemic, and a massive market opportunity. For these reasons, Airbnb will be the next stock I buy. It depends, of course, on whether the price stays roughly the same as it is now over the next week or so.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.