Key Points
Travel demand has held up even in an inflationary environment.
As personal AI agents gain use, Airbnb has an advantage over traditional OTAs.
The home-sharing giant can cash in on higher interest rates.
After years of trading sideways, Airbnb (NASDAQ:ABNB) is finally having a breakout moment.
The stock surged following its last earnings report after it topped expectations, and key metrics like growth in nights booked accelerated. Airbnb's investments in AI seem to be paying off, and it also raised its guidance for the year.
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Shares of Airbnb have since cooled off, but the post-earnings pop shows investors that the stock finally has the potential to rally after years of being stuck in neutral due to a combination of its valuation and only moderate growth.
Beyond the momentum from its last earnings report, there are more reasons to buy Airbnb. Here are three of them.
Image source: Getty Images.
1. The travel market remains strong
While consumers around the world are struggling with inflation and higher fuel costs, travel spending hasn't slowed, remaining robust since the pandemic ended.
Consumer discretionary companies like Nike and Lululemon, as well as restaurant chains, are feeling the impact of tightening wallets, but the travel market continues to outgrow the global economy.
There's no single reason for this, but there are several contributing factors. Spending by baby boomers, who have wealth from the stock market and real estate, is supporting the growth of the travel market. Additionally, spending on experiences rather than goods has been a trend among younger adults for some time, and those with disposable income are more likely to spend it on travel rather than, say, a home improvement project.
This trend is lifting all travel stocks, but Airbnb is uniquely positioned to capitalize on the long-term growth of the travel market, as its homes cover a wider range of use cases than traditional online travel agencies do, and rising travel demand should encourage more hosts to come online.
2. It's best positioned to benefit from AI personal agents
Meta Platforms shook up the stock with the launch of its Muse AI personal agent, which handles tasks like scheduling, booking travel, and even negotiating over bills, among others.
Online travel agency stocks like Expedia and Booking Holdings fell on the news, and Airbnb sold off as well, but the homesharing specialist has an advantage over the traditional OTAs. These stocks fell because Muse and other agents have the ability to search for the cheapest or best way to book. They can effortlessly go to a hotel website and book a room, rather than doing so through a platform like Booking or Expedia.
Airbnb doesn't have that vulnerability since most of its inventory is unique to its platform, or at least cannot be booked directly with the host. If Expedia and Booking get disrupted by Muse, that is likely to benefit Airbnb over the long term.
3. Airbnb benefits from higher interest rates
Most companies prefer lower interest rates. Higher interest rates act as a brake on the economy and raise borrowing costs.
However, if you're a company with cash on the balance sheet, higher interest rates are a tailwind, and Airbnb's unique business allows it to earn a significant amount of interest income.
When you book an Airbnb, you pay at the time of your booking, even though your trip could be months later. During that time, Airbnb earns interest on the cash it's holding.
As of the end of the second quarter, the company had $12.2 billion in funds receivable and amounts held on behalf of customers, in addition to $6.8 billion in cash and equivalents. Through the first half of the year, it earned $363 milion in interest income, equal to more than half of its operating income, and that was before the Fed started raising rates and treasury yields started to spike. Between rising rates and the growth of the business, Airbnb could soon have $1 billion in annual interest income.
All three of these factors are a reminder that Airbnb is more resilient than the market seems to think. It may take time for those tailwinds to play out, but Airbnb is well-positioned to benefit over the long term as the travel market expands and it flexes its advantage over Booking and Expedia. The stock is a smart buy now.
Jeremy Bowman has positions in Airbnb. The Motley Fool has positions in and recommends Airbnb and Booking Holdings. The Motley Fool has a disclosure policy.