The name Airbnb (NASDAQ: ABNB) has become synonymous with short-term vacation rentals. Its high brand awareness nearly matches that of its competitor in the hotel space, Hilton Worldwide.
Unlike Hilton, Airbnb does not own property, nor is it the first mover in the vacation rental space, a claim belonging to Expedia's Vrbo. Nonetheless, by knowing three key facts about Airbnb, investors can not only better understand its value proposition but also learn how to profit from the internet and direct marketing retail stock.
1. The power of its brand recognition
According to Tracksuit, Airbnb has achieved 83% brand recognition, just below Hilton's 85%. This is not surprising considering that more than 5 million hosts have placed over 7.7 million listings on the platform. In 2023, they accounted for more than 448 million nights and experiences, which grew 14% from the previous year.
Investors should expect that number to keep growing based on the virtuous cycle fostered by Airbnb's brand recognition. Customers enjoy the Airbnb experience and the number of choices it offers. Also, because of the number of bookings, landlords tend to gravitate to the platform, prompting them to add properties.
2. Airbnb's mastery of AI
Due to the power of the brand, investors may look at Airbnb as a real estate platform. But as mentioned before, the company owns no properties. Instead, it is an online platform, one powered by artificial intelligence (AI).
The technology boosts Airbnb in various ways, such as determining property pricing in a local area, photo arrangements on the platform, and whether a prospective guest is trustworthy.
Moreover, the company has found more unusual uses for AI. The technology can enforce holiday-related restrictions on various properties and gauge the likelihood of unauthorized or disruptive parties that may take place.
The company recently bought a company called GamePlanner, presumably to humanize the AI experience. Such technology can not only improve user experiences but also help identify additional opportunities for business and revenue.
3. The stock is not a long-term winner (yet)
Despite such innovations, Airbnb stock has underperformed the market since its launch in December 2020. Admittedly, insiders who received the IPO price of $68 per share earned significant returns. But because of the IPO surge, the stock has risen less than 10% in over three years for non-insiders who bought Airbnb stock on the first trading day.
The company may have timed its market entrance poorly. The IPO occurred well after the massive stock rally early in the pandemic. After a post-IPO surge, the stock lost nearly two-thirds of its value in the 2022 bear market. Even though it nearly doubled from that point, it has not increased significantly since its late-2020 debut.
Indeed, analysts forecast profits will fall in 2024 since a $2.7 billion income tax benefit drove most of Airbnb's $4.8 billion net income in 2023. Still, its forward P/E ratio of 35 seems low for a growth stock. Additionally, its price-to-sales (P/S) ratio of 10 is not far off record lows. Such valuations could signify a buying opportunity as Airbnb returns to profit growth.
Making sense of Airbnb stock
Ultimately, investors should look at Airbnb as an ingenious combination of marketing and technology. Its approach draws landlords and tenants to its site and gives customers unique experiences not available in hotels.
Moreover, its application of AI helps simultaneously boost revenue and improve the experience for landlords and tenants. Even though this has not led to huge gains in the stock for many investors, Airbnb's unique approach, growing client base, and rising revenue should boost returns for its long-suffering shareholders.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb. The Motley Fool has a disclosure policy.
