Is It Too Late to Buy Airbnb?

Airbnb (ABNB 3.86%) shares have trounced the market so far in 2023. They rocketed up by nearly 40% in January, in part thanks to a general spike in optimism on Wall Street about the economy -- and there's likely more room to run for this promising growth story.

Let's look at a few reasons why it's not too late to buy Airbnb stock, assuming you aren't averse to some potential risk and volatility as well.

Growth and earnings

Airbnb's operating momentum has been positive through 2022. Despite pressures like the return of workers to offices and an economic growth slowdown, revenue was up a blazing 36% in the third quarter. The short-term lodging service booked 25% higher volumes, and hosts were able to raise rates as well.

Buying this growth stock doesn't mean you have to wait years to see sustainable profitability, either. Airbnb is already solidly profitable, having generated $1.2 billion of income last quarter on just $2.9 billion of revenue. "We believe we're well positioned for the road ahead," executives said in an early November press release.

The next update

That optimism isn't likely to be missing from Airbnb's next operating update, scheduled for Feb. 14. Most Wall Street pros are looking for sales growth to again cross 20% for the Q4 period that runs through late December as profits spike.

Watch for potential pressures coming from economic uncertainties and currency exchange rate shifts. On the bright side, Airbnb is likely benefiting from higher demand for international travel and accelerating volume growth in its urban and rural host locations. A continued shift toward longer-term stays could make sales more predictable and less vulnerable to a downturn, too.

Risks and cash

The stock is often lumped in with travel industry, consumer discretionary companies like Expedia. This sector is highly sensitive to economic downturns, and that helps explain why both Airbnb and Expedia shares are trailing the market by a wide margin since early 2022. The main worry is that sales will dive if a recession strikes.

But Airbnb has some good defenses to this scenario. It offers hosts a way to earn income from underutilized space, and that service becomes more valuable during downturns. People have been using its platform increasingly for activities outside of vacations, too. Finally, the company just generated a record $1 billion in free cash flow in the past year, meaning it is entering a potentially challenging period with lots of financial flexibility.

Sure, Airbnb doesn't have a long public track record that investors can rely on when judging how it might fare through a recession. It's possible that the company will show worse growth and profitability results as early as its Q4 report in mid-February.

Yet, there's a strong potential for many more years of sales gains ahead as the business expands its supply of homes and experiences and as it bulks up on the services it provides to hosts. For growth-focused investors, these benefits outweigh the risks to owning a consumer discretionary stock through a potential downturn. And with shares still well below their level from early 2022, it's not too late to consider adding Airbnb to a balanced portfolio.