Airbnb double upgraded as analyst believes stock’s elevated valuation is ‘here to stay’

An Airbnb Inc. bear simply flipped to bullish on the home-rental firm, and gave seven explanation why he now thinks the inventory’s comparatively wealthy valuation is “right here to remain.”

Analyst Robert Mollins at Gordon Haskett doubled upgraded Airbnb’s inventory to purchase, after being at underperform for the reason that firm went public in December 2020.

The inventory slipped 1.0% in noon buying and selling. Mollins now targets a 19% rally from present ranges to $172, in contrast together with his earlier goal for an 18% decline to $119.

Listed here are the seven causes for Mollins’ about-face:

  • Latest proprietary knowledge suggests world Airbnb app downloads have “materially improved” in latest months, which when mixed with still-elevated common each day charges (ADRs) and lengthening stays signifies there may be ample room for the corporate to beat second-quarter income expectations.

“Whereas downloads don’t essentially translate to elevated engagement, we consider if customers are downloading the app, they’re focused on reserving a lodging keep — both on the platform or elsewhere — which we view as elevated shopper need to journey,” Mollins wrote in a be aware to shoppers.

  • Engagement developments in key European nations, which mixed have accounted for about three-quarters of Europe’s room nights in 2019, have witnessed “giant” enhancements in latest months, with many of the enchancment going down after Airbnb reported first-quarter outcomes, on Could 13.

The development in Europe is noteworthy, Mollins stated, as a result of the vast majority of nights booked got here from worldwide friends.

  • Vaccination charges in Europe are shortly catching as much as charges seen within the U.S., which means that barring any new restrictions from rising COVID-19 cases related to the delta variant, journey developments in Europe ought to maintain enhancing all year long.

Mollins stated he believes continued vaccination progress, pent-up demand from European customers and politicians fearing a backlash if lockdowns had been to be reimposed “ought to maintain demand developments shifting in the correct course.”

  • Proprietary knowledge signifies Airbnb “leaned again into paid advertising” within the second quarter, however stated spending was nonetheless nicely under ranges seen in 2019, “a spot that we consider is right here to stick with ~90% of visitors coming via unpaid channels.”

Mollins expects Airbnb will maintain having fun with “important leverage” from gross sales and advertising given the corporate’s world model recognition, “best-in-class” public relations technique (Airbnb receives loads of free publicity each time an announcement is made) and a loyal buyer base.

  • A sluggish return to working within the workplace and indications that almost all corporations will implement a hybrid work mannequin ought to give U.S. customers the power to journey extra incessantly within the post-pandemic world. U.S. workplace occupancy as of the tip of June was simply 31% of pre-pandemic ranges, Mollins stated.

Though U.S. workplace occupancy will be anticipated to extend over the second half of the 12 months, “we consider hybrid work fashions will grow to be a significant piece of the back-to-office recreation plan with a PWC survey indicating that 60% of executives consider workers ought to be within the workplace three days every week or much less,” Mollins wrote.

  • Upward revisions to monetary metrics ought to proceed, offering valuation assist and preserving traders constructive on the inventory, Mollins stated. And he expects extra of the identical going ahead.

For instance, the FactSet consensus for second-quarter nights and experiences booked has improved to 77.9 million from 72.3 million on the finish of the primary quarter, the income consensus has improved to $1.19 billion from $955 million and the gross reserving worth (GBV) consensus has climbed to $11.16 billion from $8.93 billion.

  • Mollins believes Airbnb warrants a “very wholesome” valuation premium relative to its peer group. He stated it’s clear that traders don’t worth Airbnb as a web-based journey company (OTA), so he adjusted his personal valuation of the corporate to be extra consultant of how the broader funding group values the inventory.

The ratio of Airbnb’s enterprise worth to consensus 2022 income estimates is 15.4%, based on FactSet, whereas the EV/gross sales ratio for OTAs Reserving Holdings Inc.

is 10.0 and for Expedia Group Inc.

is 3.6.

“Our perception that Airbnb’s elevated valuation…is right here to stick with the corporate possessing quite a few arrows in its quiver to drive additional topline upward revision momentum for years to return,” Mollins wrote.

In the meantime, Airbnb’s inventory has misplaced 1.0% 12 months up to now, whereas Reserving shares have slipped 0.2% and Expedia’s inventory has rallied 24.2%. The S&P 500 index

has climbed 16.9% this 12 months.


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