Having stocks on a watchlist that you want to buy when the stock market tanks is a wonderful strategy, and it can pay off at critical times in the market. A study from Schwab shows that the stock market falls 10% roughly every other year, and investors should be ready to pounce on those opportunities.
When the opportunity comes, this stock should be at the top of your watchlist. Airbnb (ABNB -0.89%) has actively been disrupting the hospitality industry in 2021 by redefining how people vacation. It is bringing customers and hosts unique benefits that they cannot find anywhere else, which is why I think you should keep Airbnb on your watchlist today.
Image source: Getty Images.
The most unique travel experience
If you get bored with the traditional hotel room when you go on a vacation, you’re not alone. People across the world have chosen Airbnb to find a unique place to stay for vacations over 1 billion times since its founding in 2007. With Airbnb, travelers can find nearly anything they want to live in during their vacation -- anything from traditional log cabins in Maine to a potato in Idaho (yes, you read that right).
Airbnb provides a unique variety of places to stay that no other company offers. Competitors like Vrbo offer cabins, beach houses, and other interesting places to stay, but when it comes to truly unique experiences, nobody can compete with Airbnb’s vast offerings of yurts or treehouses. Airbnb also has over 4 million hosts that are the key to its success. Without all of these hosts, Airbnb can offer more listings to users, making its platform larger than its competitors. Vrbo, for example, has just half as many hosts as Airbnb has.
This scale advantage that Airbnb has is creating a vicious cycle of success. If Airbnb has the widest offering, more users will look to Airbnb instead of Vrbo. With more users, the company will earn more fees from each stay and invest more into creating a better experience for hosts. Finally, a better experience means an increased number of Airbnb hosts.
So far, Airbnb and hosts are benefitting from this cycle: Airbnb generated $1.8 billion in free cash flow so far this year, and it has been using that money to make it easier to get started as a host. The company has implemented 50 upgrades including Ask A Superhost -- which allows prospective hosts to become familiar with the process -- all of which make hosting on Airbnb more appealing than hosting on other platforms.
Bursting out of the pandemic
In Q3, hosts raised their average booking price by 33% to $149 compared to Q3 2019 because of increased vaccination which caused a high demand for travel as the world leaves the pandemic era. Gross booking value increased 23% compared to Q3 2019 because of this even though nights booked decreased 7%. This resulted in revenue reaching record levels of $2.2 billion, which grew 36% compared to Q3 2019.
The main concern for Airbnb is its profitability. Airbnb was able to grow revenue faster than its expenses which resulted in profitability in Q3, but this hasn’t been the case in past quarters. Due to IPO expenses, the company lost over $3.9 billion in Q4 2020. These IPO expenses have seemed to wane since then but it put the company in a hole it will have to dig itself out of within the coming quarters.
These past net losses don’t seemingly have any effect on the company’s valuation because it is still valued at a lofty 21 times sales. This is much higher than other hospitality companies like Hilton Worldwide (HLT -1.07%) or Marriott International (MAR -1.01%) which trade at eight and four times sales respectively.
Still has land to take
The company has many areas where it can continue growing into 2022, but the most lucrative area is international expansion. In some areas like China and the rest of Asia Pacific, users have not ramped up their traveling efforts after the pandemic yet. Overall, global cancellations for Airbnb are higher today than they were in Q3 2019, indicating that the company still has room to expand bookings before they reach pre-COVID-19 levels. As other countries begin to reopen and consumers ramp up holiday travel, Airbnb will be a likely beneficiary.
The key to Airbnb’s long-term competitive success is the scale of hosts. The company has been making efforts to increase this number, and considering how big of a lead it has on its competition these efforts seem to be effective. As long as Airbnb can continue attracting more hosts to the platform by investing in their success, it will likely result in more users coming to Airbnb. If the company is successful in this, it could become the first place that users think to go when they want to vacation, which could set Airbnb up for immense success over the next five years.
