The Airbnb Sale: Buy or Sell This Disruptive Tech Stock?

Airbnb (ABNB -2.16%) is one of the most divisive stocks out there. Bulls believe the company is revolutionizing travel and has many years to grow, while bears believe regulation and consumer pushback will lead to an “Airbnb Apocalypse.” Bears are looking more fair this summer after shares fell 13% after second-quarter earnings that highlighted slowing demand in North America.

The stock is now down 47% from its all-time high. This seems like a perfect time to take a closer look at Airbnb and its prospects.

Slowdown in North American bookings

In the second quarter, the financials looked strong for Airbnb. Revenue rose 11% year over year to $2.75 billion. Gross booking value (GBV), or the total dollar amount flowing through Airbnb’s network, also rose 11% to $21.2 billion. Earnings and cash generation remain strong.

So what went wrong? Airbnb shares fell on comments about North American delivery times. Essentially, people are still making reservations in the region for upcoming stays. However, for stays further in the future (eg Thanksgiving or Christmas), there has been a slowdown in bookings.

Investors are concerned because weaker longer-term demand indicates that people are less confident about taking winter trips, which could slow Airbnb’s growth. North America is its most important region, and Wall Street likely revised down its growth estimates for the coming quarters after the update.

Plenty of room to grow internationally and into new verticals

North America may be Airbnb’s most important region today, but the company is working to diversify and become an increasingly global business over the next few years. Today, it has five main countries that generate revenue growth: the United States, Canada, France, the United Kingdom and Australia. In the coming years, it will invest heavily to increase the supply and demand of alternative accommodation in new markets. These include Japan, South Korea, Latin America, India and Southeast Asia.

Given how popular these regions are as travel destinations, investors should be quite optimistic about Airbnb’s long-term growth. If the market share in other countries can reach what it has in more mature markets, Airbnb’s VBG could be two or three times what it is today in five to 10 years.

Don’t forget its plans to diversify beyond just lodging/vacation rentals. Airbnb plans to relaunch its Experiences segment soon. Experiences include tours and activities for travelers, a perfect add-on for Airbnb customers. With a new product interface, investments in supply and a renewed marketing strategy, Airbnb plans to increase bookings for Experiences to a much greater level. This may help overall revenue growth even as demand in North America slows.

Data by YCharts.

Buying or selling Airbnb stock?

Even though Airbnb shares are down nearly 50% from their peak, they still trade at a high forward price-to-earnings (P/E) ratio of 28. The trailing P/E is lower, but that’s because of an accounting charge of time that benefited from earnings. AP/E of 28 is high considering S&P 500 it has a forward P/E ratio below 22.

Airbnb has a long growth trajectory, which should increase earnings and further reduce its valuation. The stock could be a buy if you are extremely bullish on the company’s international expansion and Experiences projects. However, for someone like me looking for a margin of safety in investing, Airbnb stock still seems overpriced to me right now.

It will remain on my watch list though as this is a high quality deal, just one I’d rather buy at a cheaper price.