The travel business remains stuck in a pandemic-triggered lull. Uber’s ride sharing business is still struggling, and Expedia is seeing no recovery yet in bookings. That makes it all the more remarkable that Airbnb managed not only to go public recently but also to trade at a considerable premium to other online travel stocks.
Airbnb (ticker: ABNB) priced its initial offering in December at $68 a share, opened for trading at $146, and ended the year at about the same level. But in the early weeks of 2021, it has been off to the races, with the stock up 48% through Thursday’s close—the company now sports a market cap of $127 billion.
Wolfe Research analyst Jared Shojaian finds the stock’s remarkable run to be baffling. On Friday, he cut his rating to Peer Perform from Outperform. “We simply cannot justify the current valuation,” he writes in a research note.
Shojaian adds that his previous view was that if fundamentals were strong and Airbnb was executing well, the high valuation didn’t really matter. But he’s changed his mind. “At a certain point the valuation becomes too much and too hard to justify, and the current level is that point for us,” he writes. Shojaian points out that the big run contrasts with a 3% decline year to date in Booking.com (BKNG) stock.
Shojaian notes that Airbnb stock is trading at about 24 times his 2022 sales estimate. Here’s some of his math: the analyst thinks the company can grow revenue 24% compounded through 2027, slowing to 15% by 2028, at that point reaching a 30% Ebitda (earnings before interest, taxes, depreciation, and amortization) margin. Under that scenario, he says, the stock is trading for 25 times his 2028 Ebitda estimate, “which feels like a full multiple, and that’s many years into the future without even discounting.”
The analyst warns that there are lockup expirations on insider holdings coming March 1 and again in May, and that many insiders may choose to sell”given the run in the stock. He also thinks earnings on Feb. 26 “could disappoint given their European exposure,” with 40% of 2019 revenue from the Europe, Middle East, and Africa region. And he adds that “rising interest rates are not good for tech stocks that don’t currently have earnings given the DCF (discounted cash flow) math, which might start to matter.”
Airbnb stock is down 2.6% on Friday, to $211.16
Write to Eric J. Savitz at [email protected]
