An Airbnb Inc. bear recently converted to a bull, citing seven reasons why he now believes the stock’s relatively high value is “here to stay.” Airbnb’s shares was upgraded from underperform to buy by Gordon Haskett analyst Robert Mollins after the firm went public in December 2020.
In lunchtime trading, the price fell 1.0 percent. Mollins now expects a 19 percent rise from current prices to $172, versus an 18 percent slide to $119 in his earlier forecast. The following are the seven reasons behind Mollins’ change of heart:
According to recent private data, global Airbnb app downloads have “materially improved” in recent months, indicating that there is still space for the firm to meet second-quarter revenue estimates when combined with still-high average daily rates (ADRs) and extended stays.
In a statement to customers, Mollins wrote, “While downloads do not always equate to increased interaction, we feel that if consumers are installing the app, they are interested in booking a lodging stay — either on the platform or elsewhere — which we regard as increasing consumer willingness to travel.”
Engagement patterns in key European nations, which together accounted for almost three-quarters of Europe’s room nights in 2019, have shown “significant” gains in recent months, with the majority of the improvement occurring after Airbnb’s first-quarter results were released on May 13.
The improvement in Europe is notable, according to Mollins, because international guests accounted for the majority of nights booked.
Vaccination rates in Europe are rapidly approaching those in the United States, implying that, barring any new limitations imposed by rising COVID-19 cases linked to the delta variant, travel trends in Europe should continue to improve throughout the year.
Continued vaccine success, pent-up demand from European consumers, and governments concerned about a reaction if lockdowns are reinstated, according to Mollins, “should keep demand trends moving in the right way.”
Airbnb “returned to paid promotion” in the second quarter, according to proprietary data, but spending was still considerably below levels seen in 2019, “a gap that we feel is here to stay with 90% of traffic coming through unpaid channels.”
Given the company’s global brand recognition, “best-in-class” public relations approach (Airbnb obtains a lot of free press every time an announcement is made), and dedicated customer base, Mollins believes Airbnb will continue to benefit from “substantial leverage” from sales and marketing.
In the post-pandemic environment, a gradual return to the office and hints that most enterprises will employ a mixed work model should allow U.S. consumers to travel more regularly. According to Mollins, office occupancy in the United States was just 31% of pre-pandemic levels at the end of June.
Although office occupancy in the United States is expected to rise in the second half of the year, “we believe hybrid work models will become a meaningful piece of the back-to-office game plan, with a PWC survey indicating that 60% of executives believe employees should be in the office three days a week or less,” according to Mollins.
According to Mollins, upward revisions to financial indicators should continue, giving value support and keeping investors optimistic about the stock. And he anticipates more of the same in the future.
For instance, the FactSet consensus for second-quarter nights and experiences booked has increased to 77.9 million from 72.3 million at the end of the first quarter, revenue has increased to $1.19 billion from $955 million, and gross booking value (GBV) has increased to $11.16 billion from $8.93 billion.
Airbnb, according to Mollins, deserves a “very healthy” valuation premium over its peers. He explained that investors clearly do not value Airbnb as an online travel agency (OTA), therefore he modified his own valuation of the company to reflect how the broader investment community views the stock.
According to FactSet, Airbnb’s enterprise value to consensus 2022 revenue predictions is 15.4 percent, while the EV/sales ratio for OTAs Booking Holdings Inc. BKNG, +0.47 percent and Expedia Group Inc. EXPE, -2.15 percent is 10.0 and 3.6, respectively. Mollins stated, “Our opinion that Airbnb’s premium valuation…is here to stay with the firm owning multiple arrows in its quiver to generate more topline upward revision momentum for years to come.” In the meantime, Airbnb’s stock has dropped 1.0 percent this year, while Booking’s price has dropped 0.2 percent and Expedia’s stock has risen 24.2 percent. This year, the S&amp/n
