The worst-performing stock right now in my personal retirement portfolio is short-term rental platform Airbnb (NASDAQ: ABNB). It has fallen roughly 35% from its high reached in February. My own stake is now down over 20%, and I have a feeling a lot of Airbnb shareholders are down on their investment just like me.
Just looking at my portfolio over the last couple of months, it would be easy to conclude buying Airbnb stock was a mistake. Is it time to sell and move on?
As we’ll see, that’s not what I intend to do with Airbnb stock. Here’s why.
Take a look at what’s changing
On the surface, last year wasn’t a good one for Airbnb. Full-year 2020 revenue was down 30% from 2019, and its $3.6 billion operating loss exceeded revenue — ouch. However, the pandemic changed consumer behavior. And even though the numbers don’t show it yet, this shift may be something Airbnb benefits from in the long run.
As my Motley Fool colleague Brian Stoffel points out, Airbnb appears to be a stronger company coming out of 2020: It’s taking market share from hotels as people resume normal travel activity. It can be a good idea to sell a stock when its business is sputtering. But Airbnb’s is thriving — that’s the kind of stock I like to buy, not sell.
Boosting Airbnb’s revenue in the first quarter of 2021 was an increase in its average daily rate (ADR). In the first quarter, ADR was up 35% from the comparable quarter in 2020. But this wasn’t merely hosts charging more for the same spaces. Rather, travel is different. Throughout 2020 and now in 2021, Airbnb management has noted that people are traveling in bigger groups, requiring bigger spaces. And bigger spaces cost more, so ADR is up.
A preference for larger spaces isn’t the only change Airbnb’s management has noticed. People are also staying longer. The company defines a long-term stay as 28 days or more. In the first quarter, 24% of its bookings were for long-term stays, compared to just 14% two years ago. This caused management to say in its letter to shareholders that people “are living on Airbnb.”
There are a lot of other shifts in how people are using Airbnb’s platform, but to summarize management, people are flexible and want to travel more.
What to do about it
Travel behavior has shifted. Airbnb’s platform, therefore, is shifting with it.
On May 24, Airbnb rolled out its first platform overhaul in years. All told, there are over 100 changes, and many accommodate more flexibility. Your search can be flexible with when you travel and what kind of space you travel to. Even your destination can be flexible.
That last point is a head-turning development for Airbnb. The company feels like it has a shortage of hosts. Its current marketing campaign is geared toward onboarding new hosts, and many of the app upgrades go to simplifying the setup process for property owners. But for now, there are not enough hosts for the demand Airbnb anticipates.
However, while it’s true that it needs more hosts, there’s often space in lesser-visited places, which sit empty while popular destinations are booked solid. If travelers can be flexible in their choice of destination, Airbnb can now send demand to wherever it has supply. And playing travel matchmaker is an incredible development if you think about it.
Without question, Airbnb management believes consumer travel preferences have permanently changed. Its platform overhaul reflects its belief that people will travel more, work remotely, and seek out less sought-out locations.
Personally, I’m skeptical. People increasingly prefer short-term rental homes over hotels, yes. But that’s a trend that started before the coronavirus. And I believe it has much further to go. But regarding flexibility, it seems logical to me that as people are vaccinated against the coronavirus, normal life will resume. Employees will spend more time at the office, children will get back to school, and other practical realities will reduce flexibility.
Let’s say I’m right. In that case, there’s no downside with Airbnb’s app update. Specific dates and places can still be searched as before. But if I’m wrong, Airbnb can’t afford to be unprepared for those lasting changes to consumer behavior. And in fact, it may now be one of the few travel companies in the world actually preparing for that reality. That excites me as a shareholder.
Yes, Airbnb stock is down, but I’m not selling. Over the course of months, stocks are unpredictable. But I invested in Airbnb for the long term: at least five years. Indeed, this is a stock I continue to buy, and I’ll maintain that stance until the business falters.
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