Is Airbnb Stock a Buy?

Wall Street has become more optimistic about Airbnb (ABNB 0.15%) in recent weeks. While the stock is in negative territory over the past full year, shares jumped over 30% in the month of January.

Rising confidence about economic growth trends played a big role in that rally. But investors are also projecting that the home- and room-rental giant will have good news to report in its next earnings announcement in a few weeks.

With that potential catalyst in mind, let’s look at whether Airbnb stock looks attractive today.

Positive trends

Airbnb shares were pushed lower in 2022, along with the rest of the market. The growth stock was lumped in with other tech peers as a prime candidate for slowing growth during a potential recession ahead.

But its latest earnings update illustrates how Airbnb can cut its own path through a wide range of selling environments. The company booked 25% higher volume in Q3, and rising prices helped push revenue up a blazing 36% after accounting for currency swings.

These gains came even as many workers returned to the office and suggest Airbnb isn’t as exposed to a downturn as its peers in the travel industry. “Use cases such as long-term stays and non-urgent travel are here to stay,” CEO Brian Chesky said in an early November conference call with investors. Wall Street is looking for the good times to continue for Q4 as revenue rises over 20% through late December.

Profits and cash

Airbnb stands out from many growth stocks in another important area: profitability. The company’s Q3 was its highest earning period to date, as net income jumped 61% to $1.2 billion. Airbnb is also generating ample cash, with free cash flow landing just under $1 billion last quarter.

ABNB Free Cash Flow Chart

ABNB Free Cash Flow data by YCharts.

These wins make the company less susceptible to rising interest rates as it can largely fund its own investments in its growth initiatives. Today, those initiatives include improvements to the services for both hosts and guests.

Airbnb is also in the middle of a big push to boost the supply of homes available on its service. Executives believe that trend might be helped by slowing economic growth trends as more property owners look for ways to boost their incomes.

The valuation

Valued at over nine times annual sales, the stock isn’t dirt cheap. But that valuation is down significantly since early 2022 when investors were paying over 18 times revenue for Airbnb shares.

Sure, economic growth prospects have dimmed since then. It isn’t clear how hard Airbnb’s business will be hit if there’s a sharp downturn in vacation-travel demand. But investors have some encouraging signs on this note, including the rising volume of long-term stays on the platform.

These factors all imply that Airbnb will have plenty of good news to report to its shareholders in its Q4 announcement in mid-February. That report won’t erase all of the uncertainty around 2023 and the potential for a recession ahead, but it will likely extend positive momentum in areas like booking volumes and cash flow.

Those are important metrics to watch when considering whether to buy this stock during the current turbulent period in the stock market.