Can Airbnb Help You Retire a Millionaire?

For nearly the first four months of 2021, the tech-heavy S&P 500 and Nasdaq Composite have lost 6% and 14%, respectively. While both indexes have bounced off their lows, the pullback serves as a stark reminder that the bull market has not only paused, but major corrections are possible and will be. strong.

On the other hand, it also offers savvy investors a rare opportunity to buy good companies at bargain prices. Being able to buy a stock that’s selling and hold it for years, even decades, is generational wealth creation.

Currently, short-term vacation rental company Airbnb (ABNB -1.15% ) is a growth stock amid the pandemic as rebounding as many businesses are today, but it (and the rest of the country) is entering a period where economic growth could stall.

The Federal Reserve is poised to raise interest rates to levels not seen in decades in an effort to combat rampant inflation, a move that could send the economy into a spiral. In such a scenario, Airbnb’s ability to operate profitably would be severely challenged, which naturally leaves investors wondering if the holiday rental investor is still a worthwhile investment. or not.

So let’s see if your patience with Airbnb pays off and allows you to retire not only richly but also as a millionaire.

Travel flies again

Despite years of phenomenal growth, Airbnb is only profitable periodically. Q4 marked the first time in the career rental platform’s history that it combined consecutive profitable quarters, and it was a time of explosive consumer spending after more than a year many people were confined to their homes. their.

Being able to get out and travel again has been a huge driver for the entire hospitality industry, and Airbnb has been swept away by this wave.

Total full-year bookings of $46.9 billion are nearly double what they were in 2019 before the pandemic hit, while $6 billion in revenue were 74% higher. And even though it generated a full-year loss of $352 million, almost half what it was two years earlier, and adjusted earnings before interest, taxes, amortization and amortization (EBITDA) of 1.6 billion. dollars, a significant increase from $253 million. missing for two years.

It’s clear that Airbnb’s business is becoming financially stable, but it also benefits from some special circumstances that may not be repeated, especially as recessionary pressures mount.

Tackle a new opportunity

However, there’s still a huge market opportunity that Airbnb can tap into, both in the existing niche as well as in the broader extended-stay market that Airbnb is just beginning to tap into.

The rental center notes that the percentage of active listings that accept long-term rentals, meaning stays of 28 days or more, now exceed 90%, indicating that people are now living in Airbnbs, not just hire them.

Long-term stays have become the company’s fastest-growing business by trip length, accounting for 22% of all nights booked in Q4, up 16% from Q4 2019.

Short and long term stays are still only a small part of the entire hotel industry, but they are growing much faster than hotels which is why Marriott (MARCH) partnering with home rental company Hostmaker to offer Airbnb-style rentals through the Tribute Portfolio Homes; Choice Hotel (ONLY -2.30% ) began offering private, cabin and resort accommodation through its Vacation Rentals business; and Wyndhams Hotels (WHY -2.91% ) is competing directly with Airbnb through its own extensive vacation rental business.

A crowded market

But the competition is increasing. There’s a good chance you’ve seen Expedia‘S (EXPE -0.95% ) Advertise vrbo somewhere nearby, and Booking.com (BKNG -1.14% ) has also ramped up its marketing efforts to get in front of tourists. What is supposed to give them a competitive edge is that they’re not just focusing on vacation rentals, but are also gearing up for broader travel, potentially creating a wider net for consumers.

Alphabet‘S (GOOG -4.26% )(GOOGL -4.15% ) Google also has the potential to upset the travel market. As the first place people go when planning a trip, its presence could extend beyond that into the rental business.

However, because Airbnb has focused so much on its niche, its name is almost synonymous with short-term rentals. Even if people don’t stay or use an Airbnb rental, they still consider it an Airbnb.

A million reasons why

The stock has fallen about 1.5% over the past year, but is still trading at 17 times sales and 49 times the free cash flow it generates. While it has recently been profitable, the groundwork for further growth has been laid, although maybe not in a straight line.

Wall Street forecasts revenue will nearly triple over the next five years, and earnings will quadruple in that time, suggesting that Airbnb is just getting started — and despite some setbacks, an investor. must be able to get close to a millionaire in the long run. status at the time they retire years on the road, if not become an instant millionaire.