1 Top Stock for the Post-Pandemic World
Airbnb is ready to capitalize on a world in desperate need of a vacation.
It's been more than two years since the World Health Organization declared the start of the COVID-19 pandemic. Now, after more than 450 million cases and 6 million deaths, life is getting back to normal in many locations. The United Kingdom has ended all remaining travel restrictions as of March 18. Switzerland has withdrawn COVID testing requirements for visitors, and Denmark declared last month that COVID is no longer 'a socially critical disease.'
So while there are still places where COVID cases are flaring -- China and Hong Kong are seeing a sharp spike -- the trend in Europe and North America is promising. Travel and leisure companies should benefit as the world completes its rebound from the pandemic, and one company is better positioned than perhaps any other: Airbnb (ABNB 0.31%).
How Airbnb has disrupted the travel industry with technology
Airbnb was founded in 2007 in San Francisco. It operates an online platform that pairs travelers (referred to by the company as 'guests') with property owners ('hosts'). Like other companies that operate in the peer-to-peer sharing economy, such as Lyft or Uber Technologies, Airbnb profits by connecting buyers to sellers and then charging fees to both parties. Guests pay about 14%, while hosts pay a more modest percentage (less than 3%).
As you might deduce, the key to this model is scale -- and Airbnb has it in spades. The platform boasts over 6 million active listings and more than 4 million hosts, spread across 100,000 cities worldwide. This diverse set of locations means that Airbnb is set to benefit from the pent-up travel demand accumulated during the pandemic. And one group in particular that Airbnb has built a strong connection with is young people.
Image source: Getty Images.
Today's youth loves Airbnb
The fields of advertising, entertainment, and fashion all cater to youth. There's no denying it, young people set the trends for the world. They're also, shall we say, less frugal than their elders. Moreover, attracting young customers has a long-term benefit for any business: brand loyalty. As any salesperson can tell you, it's easier to resell to an existing customer than to attract a new customer altogether.
On this front, Airbnb has established itself as a leader. Over half of its bookings (51%) come from the 18-to-34 age group. This cadre, sometimes known as 'younger millennials' or Gen Z, values customized experiences over pre-packaged vacations. Many might prefer a whimsical treehouse in a remote portion of the Rockies to a cookie-cutter hotel room at a mega beach resort.
Traditional hospitality companies struggle to provide highly customized amenities, but for Airbnb, it's a piece of cake. The company offers thousands of rentals, ranging from the extraordinary to the downright unusual: farms, castles, private islands, lighthouses, even igloos.
Image source: Getty Images.
Airbnb isn't just for vacations, it's also for digital nomads
You may not want to spend even a single night in an igloo, let alone a month. Nevertheless, many Airbnb guests view the platform as more than just a short-term vacation option.
In its latest quarterly earnings report, it noted that nearly half of bookings were for seven or more nights. Long-term stays (28-plus nights) were the fastest-growing category and represented 22% of gross nights booked. It seems the company is benefiting from the growth in so-called 'digital nomads.' These individuals harness remote work options and eschew long-term housing arrangements in favor of multi-week or monthly rentals.
As if to reinforce the trend through direct example, Airbnb CEO Brian Chesky announced he would be 'living on Airbnb, staying in a different town or city every couple of weeks.' Chesky's first visit takes him to Atlanta -- no mention yet of future stays at lighthouses or igloos.
Why Airbnb is a long-term buy
Airbnb has several tailwinds at its back that bolster its case as a long-term buy:
- Pent-up demand should drive travel and leisure spending to highs not seen since before the pandemic.
- Its business model is unique and caters to travelers who seek a one-of-a-kind experience. This business model is particularly appealing to younger travelers who crave highly tailored experiences.
- Digital nomads are increasingly turning to Airbnb for their housing needs. Almost a quarter of Airbnb's nights booked in the most recent quarter were for stays of one month or more.
Even the numbers seem to support the case. Digging into Airbnb's financials reveals more positive trends. Fiscal year 2021 revenues were $6.0 billion, up 77% year over year. Net income in Q4 was $55 million, a fourth-quarter record for the company. Gross Booking Value (the cumulative amount spent by guests) in FY 2021 rose nearly 100% versus 2020 and almost a quarter above the pre-pandemic level seen in 2019.
Looking ahead, Wall Street analysts expect FY 2023 revenue to climb to $8.7 billion and FY 2024 revenue to surge to $11.3 billion. Estimates for full-year earnings-per-share are $1.33 for 2023 and $2.04 for 2024.
These tailwinds and the company's established brand recognition as the go-to provider of customized rentals mean that Airbnb is likely the one stock you want to own as the world readies for its long-anticipated post-COVID vacation.