With Airbnb (NASDAQ:ABNB) unlikely to benefit from the reopening of economies as much as conventional hotels and still facing multiple other challenges, I continue to recommend selling ABNB stock.
Further, the shares’ extremely high valuation compared to other names in the lodging sector makes me wary of recommending the name at its current levels.
Unlikely to Benefit From the Reopening
During some of the worst parts of the pandemic, almost exactly a year ago, my wife and I were traveling around the American South, as part of our greatly altered honeymoon. (Originally, we were supposed to go to Poland and Belarus; needless to say, we never made it overseas).
During our vacation, we stayed at a handful of midrange hotels in five different cities: Memphis and Nashville in Tennessee; Savannah, Georgia; Charleston, South Carolina and Biloxi, Mississippi.
Even though we were in some of the more lax states when it came to lockdowns, the hotels were, for the most part, totally deserted. With the exception of Biloxi, where the casinos reopened on the day after we arrived, we saw almost no one else staying at the hotels with us.
And it made sense that, with intense fear of the coronavirus still somewhat elevated, very few people wanted to stay in the same building as strangers.
Conversely, I believe that, in all likelihood, Airbnb’s business was much less devastated, simply because consumers staying at Airbnb locations could be assured that they would not have to interact physically with anyone outside of their traveling parties.
As a result, I think that many people probably used the service to “get away from it all” during the lockdowns.
Further supporting my contention, in the first quarter, when there was still meaningful fear about the coronavirus, Marriott’s (NASDAQ:MAR) comparable systemwide constant dollar revenue per available room tumbled 59.1% globally, while Airbnb’s gross booking value jumped more than 50% from the previous year and its revenue climbed 5%.
Similarly, Hyatt’s (NYSE:H) comparable systemwide revenue per available room tumbled nearly 49% in the first quarter.
Bigger Comebacks Should Lead to Greater Stock Appreciation
Since most conventional hotel chains apparently got pummeled much more than Airbnb during the pandemic, it’s logical to assume that the conventional hotels’ profits will rebound much more now that the pandemic is largely over. Further, the conventional hotels should benefit much more than Airbnb from pent-up demand as well as from the return of business travel. (I just can’t see many top sales professionals staying at Airbnb homes during their business trips).
And since, as the old saying goes, “profits are the mother’s milk of stocks,” the shares of conventional hotels should be poised to rise much more than ABNB stock.
Airbnb Is Still Facing Multiple Other Challenges
In past columns, I’ve noted that Airbnb is facing massively increasing competition. That remains the case, and I think the Street is starting to realize the problem as well.
“Competition is really becoming a problem for Airbnb,” Boris Schlossberg, managing director of FX strategy at BK Asset Management, told CNBC earlier this month. ““VRBO is really giving Airbnb a run for its money, mainly because Airbnb has a much larger inventory in the urban core and VRBO is much, much better positioned in the vacation rental propert[ies], which is where most people want to go.”
Meanwhile, I continue to believe that the recent increases in crime in the U.S. could, at some point, deter many consumers from utilizing Airbnb.
Valuation and the Bottom Line on ABNB Stock
ABNB stock is trading at a huge price-sales valuation of more than 24x, while the shares are less attractive than those of many if not most hotel chains.
Given these points, I advise investors to unload ABNB stock and pick up a reopening play that has greater potential and less risk instead.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.