Stock Story -
What Happened: Shares of online accommodations platform Airbnb (NASDAQ:ABNB) jumped 6.8% in the morning session as markets roared back after an initially muted response to the Fed's rate cut, which sparked a renewed appetite for risk assets. While investors were expecting a reduction in rates from the US central bank, there was a bit of back and forth on whether the cut would be 25bps (a quarter percent) or 50bps (half a percent).
The Fed ended up slashing its policy rate by 50bps (0.5%) to 4.75%-5.00%. This marks the first rate reduction in roughly four years. As a reminder, the Fed--under Chair Jerome Powell--began raising rates to tackle inflation coming out of the COVID-19 pandemic when a confluence of supply chain disruptions, labor shortages, and stimulus spending caused inflation to run hot.
Looking forward, the Fed signaled that more cuts are possible in 2024/25. Putting it all together, the announcement and outlook provided a breath of fresh air and a clearer view of the Fed's monetary policy stance, which the market has been waiting for with bated breath. If there's anything the market doesn't like, it's uncertainty.
As a reminder, the driver of a stock's value is the sum of its future cash flows discounted back to today. The result of lower interest rates, all else equal, is higher stock valuations. This is especially true for higher-growth stocks such as those in the technology sector, where the current value depends more on cash flows many years out in the future.
Adding to the improved optimism, Bernstein said negativity surrounding Airbnb was done days before the Fed's announcement, likely catalyzing some investor interest and research into the name.
Is now the time to buy Airbnb? Find out by reading the original article on StockStory, it’s free.
What is the market telling us: Airbnb’s shares are quite volatile and over the last year have had 9 moves greater than 5%. In context of that, today’s move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 2 days ago, when the company gained 5.8% on the news that Bernstein SocGen Research Group reiterated their Buy rating on the stock, arguing that the current pessimism surrounding Airbnb is overdone. The analysts added that Airbnb's revenue growth potential could significantly surpass 10%, especially with stable margins.
Airbnb is down 3.1% since the beginning of the year, and at $130.38 per share it is trading 22.5% below its 52-week high of $168.18 from March 2024. Investors who bought $1,000 worth of Airbnb’s shares at the IPO in December 2020 would now be looking at an investment worth $900.49.
