Besides being a household name, Airbnb (NASDAQ:ABNB, Financial) is a serious business with sizeable financial strength, strong profitability, and a platform that keeps improving. Airbnb's stock seems like a bargain, considering earnings growth is accelerating, it has a very cash-rich balance sheet, and the market opportunity is growing. The company is modernizing smart tech, expanding its ecosystem, and proving that its asset-light model can produce huge free cash flow. Plus, its valuation suggests there's a significant upside from current levels.
So, if you are searching for a high-growth stock with solid underlying fundamentals and a long runway ahead, Airbnb might just be your new big win.
Company overview
The travel industry underwent a complete transformation due to Airbnb. Through Airbnb, users are offered various unique accommodations ranging from cozy cabins to villas, or even a treehouse. The company operates as a technology-driven marketplace where travelers connect with property owners who offer short and mid-term rentals. But for travel, the more it's used, the more hosts join, which creates a flywheel effect that propels the platform. Airbnb's way of making money is simple, but a game changer. It takes a small cut from every booking and of course, like most disruptors, it hasn't gone unnoticed by regulators. But that hasn't stopped the big players from seeing what the company has to offer. It even has major financial firms, such as Vanguard Group Inc., Morgan Stanley (NYSE:MS), and BlackRock Inc (NYSE:BLK). with a stake in it, which indicates confidence in Airbnb's long-term upside.A strong finish to 2024 with growth fueled by demand
Airbnb finished 2024 with solid fourth-quarter earnings. The strong steady demand and a modest increase in Average Daily Rate (ADR) drove revenue up to $2.5 billion, which represented a 12% year-over-year increase. More importantly, Nights and Experiences Booked surpassed 491 million, which in turn pushed Gross Booking (NASDAQ:BKNG) Value (GBV) to nearly $82 billion, showing that Airbnb's platform continuously attracts travelers as well as hosts.One of the most notable shifts was in profitability. Net income reached a significant $461 million, a dramatic reversal from the prior year's net loss, which had been burdened with non-recurring taxes. That, of course, emphasized the power of Airbnb's business model, because once those one-time costs fell away, the company's underlying profitability showed through. It's not just cost-cutting though, Airbnb was also able to bring Adjusted EBITDA up to $765 million, proving that it could make balanced investments in platform expansion with strong margins.
Airbnb's financial strenghth: Profitability, solid liquidity, and cash flow resilience
Talking about Airbnb's full-year 2024 performance, it was a fantastic one as revenue was up 11.9% YOY to $11.1 billion. Net income came in at $2.65 billion, making it evident that disciplined cost management and smarter operations are working. Gross profit also reached a noteworthy $9.2 billion. Better pricing strategy and operational improvements of the company have turned past losses into solid profits.A cash-rich powerhouse: Now moving on to Airbnb's one of the biggest strengths, which is its robust liquidy position. The company was sitting on the trifling sum of $10.6 billion of cash by the end of the year, up from $10.1 billion last year and far outstripping its debt obligations. Even more, it has a cash-to-debt ratio of an impressive 4.63, which means it has almost 5 times more cash than debt, which is rather rare in the tech world where companies often resort to heavy leverage. This gives Airbnb an enviable position to innovate, make strategic acquisitions, or otherwise weather any economic crisis without a care in the world.
In a broader view, total assets have gone up to $21 billion, showing consistent growth, while liabilities are in control at $10.1 billion, with accrued expenses at an acceptable $1.6 billion. Isn't this exactly what investors would want to see?
Cash Flow shows strong operational performance: One of the key highlights to note is Airbnb's ability to generate cash. Operating cash flow saw a solid increase to $4.5 billion from $3.88 billion in 2023. This indicates that Airbnb's core business generates substantial liquidity, giving the company room to reinvest in growth, return capital to shareholders, or fortify its balance sheet. Moreover, investing cash outflows were only $815 million, and most were related to equity investments rather than aggressive capital expenditures. Lastly, Airbnb purchased $3.4 billion in amounts of shares during full-year 2024, an indicator that its management has confidence in the company's valuation and future earnings potential.
Expanding the platform: Tech upgrades and new features
Beyond the financials, Airbnb is working hard for long term-growth. The company has completely rebuilt its technology stack from the ground up with more than 535 features and upgrades. These efforts made a solid impact because higher engagement and better conversion rates were seen in addition to increased supply. In addition, the introduction of the Co-Host Network that helps homeowners manage their listings better has been a huge success. It had almost 100,000 listings onboarded so far, earning twice of what comparable Airbnb properties bring in.Moreover, Airbnb is now ready to grow beyond short-term rentals using an upgraded tech infrastructure. Product optimizations, new payment methods, as well as improved search functions have improved the user experience already. Yes, Airbnb is keeping up with the travel industry, but it is shaping its future as well, as it is ready to drive even stronger growth while gearing up for the May 2025 Summer Release.
Airbnb's valuation: Suggesting an upside that's justified
Right now, the GF Value estimate for Airbnb is $167.68, and it is currently being traded at $126.94. This makes the stock appear undervalued because it is currently priced lower than it is estimated to be worth. If the Airbnb valuation aligns with its estimated fair value, investors can get a 32.13% potential upside from the current price, assuming no big change in fundamentals or market conditions occurs.
However, let's dig deeper. Airbnb's platform-driven model makes it an asset-light cash machine, but the tangible book value of its shares is just $12.26, so most of Airbnb's worth is its brand value and future cash flows. Traditional valuation metrics such as the Graham Number ($33.75) also imply a stock that is expensive relative to fundamentals, but that's expected given the nature of the company is a growth-oriented tech firm.
Moreover, while Airbnb has a huge Total Addressable Market (TAM) estimated at around $3.4 trillion across short-term stays, long-term stays, and experiences, its market cap is only $83.3 billion. This indicates that it has acquired only a small portion of its potential market.
The interesting question is whether Airbnb should deserve a premium. I'd say yes given its strong profitability, high-margin business, and broadening ecosystem. This company has an amazing cash-to-debt ratio, which gives it the flexibility to get through economic downturns, and $3.57 billion in share buybacks is a banner from management that they are confident.
For long-term investors, there is an opportunity in the current dip in the stock price of 21.5% over the past year, keeping in view all the above aspects as well. However, if macro risks pressure consumer travel, patience might pay off.
Airbnb's valuation stands strong against industry peers
Airbnb's potential upside is promising in terms of its GF value estimate. So now, let's compare it to its two industry peers, Royal Caribbean (NYSE:RCL, Financial) and Trip.com (TCOM, Financial).RCL is extremely overvalued, with its estimated GF Value of $160.78 while trading at $219.41, which is way above fair value. It also once showed a classic case of excessive optimism, as it traded 177.5% above its GF Value. On the other hand, with a GF Value of $59.16 and a stock price of $66.67, TCOM is modestly overvalued. While not as stretched as RCL, it still carries a slight premium.
Airbnb, by contrast, looks modestly undervalued on a valuation basis and hence a better investment.
Source: Author generated based on historical data
Strong earnings growth makes valuation even more compelling
Historically, Airbnb has commanded a premium compared to competitors, but that premium is now narrowing as earnings growth catches up with valuation. The decline in the stock's P/E ratio is projected to be steady, from 28.70 in 2025 to an estimated 16.86 by 2028. What that means is that over the next few years, Airbnb could be trading at a sub-20 P/E multiple, a level that will make it a far more attractive investment for long-term investors.This trend is backed by strong expected EPS growth, as analysts forecast a steady rise from 5.65% in 2025 to 21.28% in 2028. The valuation gets better and better as Airbnb's earnings grow and the stock remains fairly stable, making this an increasingly compelling entry point. Also, given its financial strength, growing margins, and improving cash flows, the risk-reward profile of Airbnb looks much better than it has in previous years.
Source: Earnings estimates (Seeking Alpha)
How high can Airbnb stock go in the next 12 months
Looking at Airbnb right now, the question that arises is how much more upside does this stock have in the next 12 months? I have two possible scenarios based on its financials, growth trajectory, and market positioning, in which I believe that its base case target is $155 and bull case is $165. Here's how I got there.When it comes to the base case, Airbnb will achieve its valuation from steady earnings growth and margin expansion. If analysts estimate 2026 EPS of $5.04, and if we apply a P/E of 25 times, we come up with a price target of $155. For this, Airbnb needs to continue doing what it is doing, which is executing well and maintaining its high-margin, asset-light model in a time when travel demand is very strong.
In the bull case, things become even more exciting. If Airbnb beats EPS estimates (closer to $5.20-$5.30), the market can reward its financial strength with a higher P/E of 27-28 times. So, I'm looking at a $165 price target, that's almost a 30% rally from today's levels. It is based on accelerating GBV, growing host network, and better conversion rates after the upgrade of recent tech.
Risks to my thesis
Airbnb's greatest risk is that it depends on travel demand. Wealthier consumers have experience at the top of their minds, but many of us are financially challenged, spending most of our income on things like housing and transportation. Travel spending could be one of the first things to go if economy takes a hit, shrinking Airbnb's growth.Another big risk is regulation. Cities like New York and Paris have already cracked down on short-term rentals, and others can join them. These strict rules can reduce the number of places where Airbnb can operate, impacting its supply and revenue.
These concerns are further added to by insider selling which has been notable over the past few years. Some insider selling is to be expected, but Airbnb's executives, over the past years, have been dumping huge amounts of stock with no insider buys to balance it out. Yet guru investors have been buying actively, showing that seasoned professionals see value at these levels. This is what I have highlighted in my previous article, that guru trading activity often points to long-term potential and tames insider sales. These institutional purchases give a layer of optimism for the company, however, insider selling is also a key factor to watch.
Gayner's Bold Bet on Airbnb Offsets Insider Selling Concerns: While I talked about the big firms that have a stake in Airbnb, Tom Gayner (Trades, Portfolio) the Co-CEO of Markel Corporation executed a more significant and bold investment in Airbnb during the fourth quarter of 2024 through a notable 502% increase, by buying an additional 96,160 shares. The investment move becomes more fascinating as initially Gayner believed that Airbnb had produced concern among hotel investors who owned stocks like Marriott (NASDAQ:MAR) International (MAR, Financial). By analyzing deeper, he came to understand that Airbnb was growing the travel market instead of decreasing its customer base. The strategic boost in holdings signals a change in perception from seeing Airbnb as a disruptor to recognizing it as a long-term growth engine. The significant increase also demonstrates investors' positive outlook toward Airbnb because they believe the company will sustain its strong competitive position to produce durable cash flow streams.
As insiders have not purchased Airbnb's shares in the open market over the past five years, Gayner's investment stands out even more as a strong external endorsement for Airbnb's future.
Your takeaway
Airbnb has become a cash-rich powerhouse with strong profitability, expanding platform, and disciplined execution. It has tremendous free cash flow generation, extremely high margins, and the flexibility of being able to scale efficiently. This makes the company a standout. The investment case becomes further compelling as it has a potential 30% upside, steady earnings growth, and a valuation that is becoming increasingly attractive.Of course, there are risks of economic downturns and regulatory hurdles, but the long-term trajectory of Airbnb remains intact. The company's fundamentals signal confidence from within. Insider selling raises questions, but the guru investors see opportunity and that alone speaks volumes.
Therefore, the current dip in its price could be an entry point for patient investors into a high-quality business that has room to grow.
This content was originally published on Gurufocus.com
