As Airbnb Inc. navigates a turnaround, some Wall Street analysts are becoming increasingly bearish on the vacation-rental platform. The number of sell ratings for Airbnb has reached an all-time high, with six out of the analysts covering the company now advising investors to divest their holdings. These bearish opinions, however, remain in the minority, as approximately three dozen analysts are nearly evenly split between recommending buying or holding the stock.
The skepticism of the bearish analysts may not be unfounded. Just two years ago, when Airbnb’s market capitalization was nearly double what it is today, the company was enjoying annual revenue growth of almost 80%, driven by the surge in remote work and pandemic-induced demand. In contrast, this year’s sales are projected to grow by just 17%, with further declines anticipated in 2024. Nevertheless, Airbnb’s stock is still trading at around 26 times projected earnings, a valuation similar to that of tech giant Apple Inc. Airbnb shares have been declining and are on track for a fourth consecutive week of losses.
Several analysts see multiple hurdles for Airbnb to justify its current valuation. In September, New York City implemented rule changes concerning short-term rentals, significantly reducing the number of Airbnb listings. Other regions have also taken measures to curb Airbnb operations as they grapple with housing shortages, which have led to rising rents. Canada is even considering the introduction of new regulations for short-term rentals that would impact both Airbnb and VRBO.
Ross Gerber, the co-founder and CEO of wealth management firm Gerber Kawasaki Inc., expressed doubts about Airbnb’s growth prospects. He stated, “I just don’t see where their growth comes from, whether it be services or anywhere else.” It’s worth noting that his firm holds shares of MGM Resorts International but not Airbnb.
Furthermore, with the post-COVID travel boom expected to wane, KeyBanc downgraded Airbnb in October, citing the likelihood of revenue growth deceleration in the next year as travel tailwinds subside. The firm suggested that this shift could affect Airbnb’s investor base, transitioning from one focused on growth to one prioritizing “GARP” (growth at a reasonable price).
Seaport Research Partners initiated coverage of Airbnb with a neutral rating, indicating a balanced risk-reward profile, given expectations for moderating bookings growth. Analyst Aaron Kessler acknowledged the strong bookings trends in 2021 and 2022 but anticipated more consistent, long-term growth, particularly in the United States.
Nonetheless, some bullish analysts are maintaining their positive outlook on Airbnb ahead of the company’s third-quarter earnings report. They believe that pent-up travel demand, coupled with robust consumer spending driving the U.S. economy, remains a driving force for the platform.
Brian Mulberry, Client Portfolio Manager at Zacks Investment Management, highlighted the continued momentum of “revenge travel” and the favorable outlook for consumer spending. He expressed confidence in Airbnb’s business model and regarded changing short-term rental regulations as a short-term challenge that the company can overcome.
Ivan Feinseth, Chief Investment Officer at Tigress Financial Partners LLC, is among the most bullish on Airbnb in Wall Street, with a $185 price target implying a potential 60% gain. He believes that restrictions on short-term rentals are unlikely to persist, emphasizing the economic benefits that tourists bring to cities and countries.
While doubts about Airbnb’s growth and valuation persist, the company’s ability to adapt and capitalize on evolving travel trends and regulations will likely determine its long-term performance.
