Long-term holders of Airbnb (NASDAQ: ABNB) stock have likely experienced deep frustration with this stock. Due to the site's ability to increase the supply of vacation properties, attract new landlords and tenants through the popularity of its brand, and apply artificial intelligence (AI) to solve business-related issues, many investors thought it could achieve outsize gains.
Amid that optimism, it debuted in late 2020 at $68 per share but rose to $145 per share on the first day. Unfortunately, for long-term investors, the momentum did not last, and nearly four years after the IPO, it trades at just under $120 per share.
This lack of performance may leave investors wondering whether they should stay in Airbnb stock. Does that stock performance mean the bulls were wrong about the stock, or does it need more time or better business conditions to achieve its full potential? Let's take a closer look.
Why has Airbnb stock underperformed?
Determining why Airbnb stock has underperformed probably comes down to a few factors. One is the timing of its IPO. Initiating trading in December 2020 allowed it to not be affected by the most severe of the lockdowns. Still, stocks were in the midst of a significant bull market at that time, leaving the stock with considerable downside when investors began to sell stocks.
Another reason is likely the uncertain economy in the U.S., its largest market. In a sense, its business has held up well, with a 12% yearly increase in gross booking volume (GBV) in the first half of 2024. Still, its customers are booking stays on shorter notice, indicating a lack of confidence to book a few months in advance.
Also, despite the lackluster stock performance, investors may question the company's valuation. A $2.7 billion tax benefit in the third quarter of 2023 gave net income a one-time boost, which is why its trailing price-to-earnings ratio (P/E) is only 16.
Nonetheless, if looking at the forward P/E ratio, which does not include such a tax benefit, the multiple rises to 28. In an environment where bookings growth is barely in the double digits, it is not clear how investors will perceive its valuation.
Airbnb's future
Still, shareholders still have good reason to remain optimistic about its long-term future, mainly because it still has many largely untapped markets where it can increase its growth.
One option is to lean more into its international business. The U.S. makes up a plurality of Airbnb's 8 million listings. The fact that the U.S. is approximately 4% of the world's population shows most countries are undertapped markets.
Additionally, investors may forget that Airbnb also coordinates experiences, which can include wine tastings, walking tours, wellness sessions, and other events.
To that end, it introduced a new category of experiences called Icons, a supercharged version of the experiences hosted by people and places tied to film, art, music, sports, and other interests. The company highlighted a VIP event with comedian Kevin Hart or spending the night in the Ferrari museum as examples of such experiences.
Over time, such add-ons could further reinforce the brand recognition that has made Airbnb an industry leader and drive significant revenue and earnings growth.
Should I stay in Airbnb?
Despite years of disappointment, it is not necessarily time to give up on Airbnb stock. Nearly four years of stagnation in the stock price can try investors' patience, and without a more obvious catalyst, profiting from this stock will likely require more years of waiting.
Nonetheless, its 28 P/E ratio may mean the stock has become fairly priced. Moreover, considering the vast opportunities to book nights and experiences it has not yet fully pursued, its revenue growth should continue.
Indeed, exercising patience has arguably become the most challenging part of being an Airbnb shareholder, and many investors will probably feel it is not worth the wait. However, for those that can stay the course, rising revenues and growth potential make it likely the stock will move higher over time.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb. The Motley Fool has a disclosure policy.
