Can Airbnb help you retire a millionaire?
In nearly the first four months of 2021, the tech-heavy S&P 500 and Nasdaq Composite lost 6% and 14%, respectively. Although both indices have rebounded from their lows, the pullback is a stark reminder that bull markets not only pause, but can and will also experience sharp corrections.
On the other hand, it also offers savvy investors an all-too-rare opportunity to buy good companies at bargain prices. Being able to buy a stock on sale and hold it for years, even decades, is how generational wealth is created.
Currently short term vacation rental company Airbnb (ABNB -1.15% ) is a growth stock in the midst of a pandemic recovery like many companies are today, but it (and the rest of the country) is entering a period where economic growth could come to a screeching halt.
The Federal Reserve is poised to raise interest rates to levels not seen in decades in a bid to tackle runaway inflation, a move that could blow up the economy. In such a scenario, Airbnb’s ability to operate profitably would be seriously tested, which naturally leaves investors wondering if the vacation rental leader is still a profitable investment.
So let’s see if patience with Airbnb will pay off and allow you to retire not just comfortably, but as a millionaire.
The journey resumes
Despite years of phenomenal growth, Airbnb has only just become recurring profitable. The fourth quarter marked the first time in its history that the professional leasing platform put together back-to-back profitable quarters, and it came at a time of explosive consumer spending after more than a year of people locked in their own house.
Being able to get out and travel again has been a big boost for the entire hospitality industry, and Airbnb has been swept away by the tide.
Gross booking value for the full year of $46.9 billion was nearly double what it was in 2019 before the pandemic hit, while revenue of $6 billion was 74% higher . And while it produced a full-year loss of $352 million, that was almost half of what it was two years ago, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $1.6 billion, a substantial increase from $253 million. lost on a two-year stack.
Clearly, Airbnb’s business is becoming financially stable, but it’s also benefiting from a unique set of circumstances that may not be repeatable, especially as the pressures of the recession loom.
Adapt to a new opportunity
Still, there’s a huge market opportunity that Airbnb can tap into, both in its current niche and in the broader extended-stay market it’s just beginning to tap into.
The rental hub notes that the percentage of active listings accepting long-term rentals, meaning stays of 28 days or more, now exceeds 90%, suggesting that people are now living in Airbnbs, and not just by renting them.
Extended stays became the company’s fastest growing business as measured by travel time, accounting for 22% of gross room nights booked in the fourth quarter, an increase of 16% from the fourth quarter of 2019.
Short and long stays are still only a small part of the entire hospitality industry, but they are growing much faster than hotels, which is why Marriott ( MAR ) has partnered with home rental company Hostmaker to offer Airbnb-style rentals through its Tribute Homes portfolio; Choice Hotels (CHH -2.30% ) began offering private residences, cabins and resort-style accommodations through its vacation rental business; and Wyndham Hotels (WH -2.91% ) competes directly with Airbnb through its own vacation rental business.
A crowded market
But the competition is growing. Chances are you’ve seen Expediait is ( EXPE -0.95% ) Vrbo is advertising somewhere lately, and Booking.com (BKNG -1.14% ) also stepped up its marketing efforts to make itself known to travellers. What arguably gives them a competitive advantage is that they are not only focused on vacation rentals, but also more broadly on travel, potentially expanding their network to consumers.
Alphabetit is ( GOOG -4.26% )( GOOGLE -4.15% ) Google also has the ability to further disrupt the travel market. As the first place people turn to when planning a trip, its presence could extend deeper into the home rental industry as well.
Yet because Airbnb has been so focused on its niche, its name is almost synonymous with short-term rentals. Even when people aren’t staying or using an Airbnb rental, they’ll still call it Airbnb.
A million reasons why
The stock is down about 1.5% over the past year, but still trades at 17 times sales and 49 times the free cash flow it generates. Although it has recently become profitable, the foundations for future growth have been laid, but probably not in a straight line.
Wall Street predicts revenue will nearly triple over the next five years and profits will quadruple during that time, suggesting Airbnb is just getting started — and despite some hurdles, a long-term investor should be able to come close of millionaire status when they retire years later, if not become a millionaire outright.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.