Spring is around the corner, and many people are planning their vacations, often turning first to Airbnb (ABNB -1.15%). The short-term rental and experience company's stock, which now trades at roughly $150 per share, has been essentially flat since going public in 2020, when its shares opened for trading at $146 per share.
Beyond the stock price, the platform is more popular than ever, but it is facing increased regulation across the globe. So, let's examine the stock and Airbnb's recent key financial metrics and look at potential risks to evaluate whether it should be considered a buy, sell, or hold.
Airbnb keeps taking market share
In 2023, Airbnb managed 448 million nights and experiences bookings, reflecting an increase of 14% compared to 2022. Those bookings translated into $9.9 billion in revenue and $3.8 billion in free cash flow, representing year-over-year growth of 18% and 12%, respectively.
Given Airbnb's asset-light strategy, the company relies on its network of hosts to grow, which surpassed 5 million globally in its fourth quarter of 2023. Moreover, the platform boasted 7.7 million active listings, marking an impressive 18% year-over-year uptick.
Looking ahead, management believes the company can generate between $2.03 billion and $2.07 billion in revenue for the first quarter of 2024, representing an increase between 12% and 14%.
A healthy balance sheet provides a competitive advantage
Airbnb boasts an exceptional balance sheet, featuring $8.1 billion in net cash (calculated as cash and cash equivalents minus debt). This financial strength enabled Airbnb to achieve a net interest income of $638 million in 2023, marking an increase of almost 300% from the $162 million net interest income recorded in 2022.
In contrast, industry rivals such as Hyatt Hotels and Marriott International carry net debts of $2.3 billion and $11.5 billion, respectively. Due to servicing these debts, Hyatt and Marriott incurred net interest expenses of $68 million and $535 million over the trailing 12 months, respectively.
As interest rates remain elevated, the disparity between Airbnb's net interest income and its competitors' net interest expense will likely widen. Additionally, Airbnb likely won't need to take out increasingly expensive loans even if it wants to put its money to work to pursue strategic initiatives such as acquisitions or product development, which has long been a focus for management.
ABNB Net Financial Debt (Quarterly) data by YCharts
Moreover, Airbnb's healthy balance sheet and growing free cash flow enable management to repurchase its stock aggressively. In 2023, the company repurchased nearly $2.3 billion worth of its stock, lowering its diluted outstanding shares from 694 million to 676 million, or 2.6%. In addition, management recently announced a new $6 billion share repurchase program, which will continue to increase existing shareholders' ownership stake.
What could go wrong for Airbnb?
As Airbnb has grown, some cities have become displeased with the platform, alleging it pressures housing availability and affordability. For example, New York started enforcing regulations in September 2023 that Airbnb called a "de facto ban on short-term rentals."
Prior to the enforcement, New York City officials estimated there were approximately 10,800 Airbnb listings, generating an estimated $85 million in net revenue in 2022. While $85 million may seem like a relatively small drop in the bucket for Airbnb's annual revenue of $9.9 billion, the concern is that more cities rebuff or tighten their laws on short-term rentals.
The good news is that Airbnb Co-Founder and CEO Brian Chesky recently claimed 80% of the company's top 200 cities have regulations on the books, with generally "workable solutions for home sharing for us to continue to grow and thrive."
ABNB Price to Free Cash Flow data by YCharts
Is Airbnb a buy, sell, or hold?
When examining whether a stock is worth adding to your portfolio, it's important to determine its valuation to see if its stock is a good value. One way to determine that is to look at its price-to-free-cash-flow (P/FCF) ratio -- a metric that measures a stock's market cap compared to its annual free cash flow. If this ratio is lower than its historical averages and peers, the stock could be considered undervalued.
Airbnb trades at 25.9 times free cash flow, slightly higher than its average of 22.2 over the trailing 12 months. However, the stock looks undervalued compared to Hyatt and Marriott at 32.8 and 28 times free cash flow, respectively.
Add it all together, and Airbnb stock appears fairly priced. Still, given Airbnb's growth trajectory and impressive balance sheet, it's a business that long-term investors should consider adding to their portfolio.
