Airbnb shares have flatlined since the December 2020 IPO, but are they about to take off?

Airbnb shares have been fascinating to watch since listing in December 2020, because they have not performed as investors may have expected. It listed at a time that was arguably the worst time to do – when the industry was shut down. But shares held up well, and there surely was more upside to come when travel returned…or so we thought. So now that travel is back to normal, where to next?

Airbnb shares, log scale (Source: TradingView)

Introduction to Airbnb shares

For the sake of those who’ve been on Planet Mars since 2007, let’s recap the company. In 2007, the co-founders Joe Gebbia, Nathan Blecharczyk and Brian Chesky had the idea of putting an air mattress in the living room of their San Francisco residence and renting it out – calling it AirBed and Breakfast. By the next year, they turned it into their own business, hosting the first guests at the Industrial Design Conference, when guests had a hard time finding lodging into the city. The next decade was a period of non-stop growth into new markets as well as into ‘experiences’.

There are many parallels between Airbnb and Uber. Both companies are icons of the so-called ‘sharing economy’. They expanded quickly despite competition from entrenched players (hotels and taxis respectively). And despite controversies, and even occasional legal actions, consumers went out of their way to use Airbnb and Uber.

By the time Airbnb listed, it was valued at US$100.7bn, despite pandemic shutdowns to travel that sent its bottom line into the red by more than $4bn. It is easy to forget the other thing that could’ve been an impediment to the company’s listing – WeWork’s botched IPO and the departure of its CEO Adam Neumann as a consequence. The pandemic did mean that the company had to can its plans to list without raising capital and list in a traditional way, by raising capital through the issue of new shares.

The company saw travellers return as restrictions lifted, and made its inaugural profit in 2022 – $1.9bn.

A new normal is emerging

Things haven’t been so smooth in the past couple of years, however. The company exited Russia and China, which were big markets for it. Even though travel is growing, the company’s growth (in ‘nights and experiences booked’) is slowing down – at just 9.5% for 2Q24.

Airbnb hasn’t been as much of a talker about how it could benefit from AI as other companies, although it has promised something is coming soon. And Wall Street analysts want new non-core products to drive growth. The company, aware of this, has hinted a new type of marketplace could be coming offering cleaning and maintenance services, airport rides, or even private chef of sommelier sessions.

Analysts are not optimistic

Although Airbnb made $9.9bn in revenue (up 18%) and a US$4.8bn profit (up 153%) in CY23, representing a near 50% margin, analysts aren’t too optimistic about the company in the future.

There are 35 analysts, and their mean target price is $152.93, barely a whisker higher than the closing price of $148 on July 18. Although revenues are expected to increase 15% to $11.2bn in FY24, analysts expect a 37% decline in EPS to $4.52, which would be a profit of just $2.9bn. In FY25, analysts call for $12.5bn in revenue and a $3.2bn profit, and for $12.5bn in revenue and a $3.7bn profit in FY26. Only in FY28, is the company’s EPS expected to surpass FY23. The company is trading at a P/E of 32.8x and a PEG of 1.8x.

Our conclusion

Airbnb will need to follow through on its promises to delve into new products, because it may have reached the ceiling (or be close to reaching it) with its core business. There may be some opportunity to profit in the short-term. In our view, there might be a one-off boost on the September quarter driven by summer travel and the Paris Olympics. But the travel industry is far more competitive and lower margin than it was pre-pandemic, so it may not be the long-term growth story it once was, unless it delves into new products or joins the AI race.

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