Over almost the first four months of 2021, the S&P 500 and the tech-heavy Nasdaq Composite have lost 6% and 14%, respectively. Although both indexes have bounced off their lows, the pullback serves as a stark reminder that bull markets not only pause, but can and will have sharp corrections, too.
On the other hand, it also provides savvy investors with an all-too-rare opportunity to buy good companies at great prices. Being able to buy a stock on sale and hold onto it for years, decades even, is how generational wealth is created.
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Right now, short-term vacation rental company Airbnb (NASDAQ: ABNB) is a growth stock in the midst of a pandemic recovery like a lot of businesses today, but it (and the rest of the country) are entering a period where economic growth may come to a screeching halt.
The Federal Reserve is ready to raise interest rates to levels not seen in decades in an effort to combat rampant inflation, a move that could send the economy spiraling. In such a scenario, Airbnb's ability to profitably operate would be severely challenged, which naturally leaves investors wondering whether the vacation rental leader is still a worthwhile investment.
So let's see whether patience with Airbnb will pay off and allow you to retire not just well off, but as a millionaire.
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Travel takes flight once again
Despite years of phenomenal growth, Airbnb has only just turned profitable on a recurring basis. The fourth quarter marked the first time in its history that the vocational rental platform put together back-to-back profitable quarters, and it came at a time of explosive consumer spending after a year-plus of people being cooped up in their own homes.
Being able to get out and travel again was a big boost to the entire hospitality industry, and Airbnb has been swept along on the wave.
Full-year gross booking value of $46.9 billion was nearly double what it was in 2019 before the pandemic struck, while revenue of $6 billion was 74% higher. And while it produced a full-year loss of $352 million, that was nearly half what it was two years prior, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $1.6 billion, a substantial increase over the $253 million lost on a two-year stack.
It's clear Airbnb's business is becoming financially stable, but it's also benefiting from a unique set of circumstances that may not be repeatable, especially as recessionary pressures loom.
Image source: Getty Images.
Settling in to a new opportunity
Still, there is a massive market opportunity Airbnb can exploit, both within its current niche as well as in the broader extended-stay market that it is just beginning to tap.
The rental hub notes that the percentage of active listings accepting long-term rentals, meaning stays of 28 days or more, now exceeds 90%, suggesting people are now living in Airbnbs, not just renting them.
Long-term stays have become the company's fastest-growing business measured by trip length, accounting for 22% of gross nights booked in the fourth quarter, a 16% increase from the fourth quarter of 2019.
Short- and long-term stays are all still just a small sliver of the entire hotel industry, but they are growing much faster than hotels, which is why Marriott (NYSE: MAR) partnered with home rental firm Hostmaker to offer Airbnb-style rentals through its Tribute Portfolio Homes; Choice Hotels (NYSE: CHH) began offering private residence, cabin, and resort-style accommodations through its Vacation Rentals business; and Wyndham Hotels (NYSE: WH) is directly competing against Airbnb through its own extensive vacation rental business.
Image source: Getty Images.
A crowded market
But competition is mounting. There's a good chance you've seen Expedia's (NASDAQ: EXPE) Vrbo advertising somewhere lately, and Booking.com (NASDAQ: BKNG) has also upped its marketing efforts to get in front of travelers. What arguably gives them a competitive advantage is they're not just vacation rental-focused, but also more broadly travel-oriented, potentially casting a wider net for consumers.
Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL) Google also has the ability to further upset the travel marketplace. As the first place people turn to when planning a trip, its presence could more deeply extend that into the home rental business too.
Yet because Airbnb has been so laser-focused on its niche, its name is nearly synonymous with short-term rentals. Even when people aren't staying at or using an Airbnb rental, they'll still refer to it as an Airbnb.
A million reasons why
The stock is down about 1.5% over the past year, but still trades at 17 times sales and 49 times the free cash flow it produces. Although it's recently turned profitable, the foundation for further growth has been set, though probably not in a straight line.
Wall Street forecasts revenue will nearly triple over the next five years and earnings will rise four-fold in that time, suggesting Airbnb is only just getting started -- and despite some hurdles, a long-term investor ought to be able to get close to millionaire status by the time they retire years down the road, if not become a millionaire outright.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns and recommends Airbnb, Inc., Alphabet (A shares), Alphabet (C shares), and Booking Holdings. The Motley Fool recommends Marriott International. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
