Airbnb double upgraded as analyst believes stock’s elevated valuation is ‘here to stay’

The banal slipped 1.0% successful midday trading. Mollins present targets a 19% rally from existent levels to $172, compared with his erstwhile people for an 18% diminution to $119.

Here are the 7 reasons for Mollins’ about-face:

• Recent proprietary information suggests planetary Airbnb app downloads person “materially improved” successful caller months, which erstwhile combined with still-elevated mean regular rates (ADRs) and lengthening stays indicates determination is ample country for the institution to bushed second-quarter gross expectations.

“While downloads don’t needfully construe to accrued engagement, we judge if consumers are downloading the app, they are funny successful booking a lodging enactment — either connected the level oregon elsewhere — which we presumption arsenic accrued user tendency to travel,” Mollins wrote successful a enactment to clients.

• Engagement trends successful cardinal European countries, which combined person accounted for astir three-quarters of Europe’s country nights successful 2019, person witnessed “large” improvements successful caller months, with astir of the betterment taking spot aft Airbnb reported first-quarter results, connected May 13.

The betterment successful Europe is noteworthy, Mollins said, due to the fact that the bulk of nights booked came from planetary guests.

• Vaccination rates successful Europe are rapidly catching up to rates seen successful the U.S., which suggests that barring immoderate caller restrictions from rising COVID-19 cases related to the delta variant, question trends successful Europe should support improving passim the year.

Mollins said helium believes continued vaccination progress, pent-up request from European consumers and politicians fearing a backlash if lockdowns were to beryllium reimposed “should support request trends moving successful the close direction.”

• Proprietary information indicates Airbnb “leaned backmost into paid marketing” successful the 2nd quarter, but said spending was inactive good beneath levels seen successful 2019, “a spread that we judge is present to enactment with ~90% of postulation coming done unpaid channels.”

Mollins expects Airbnb volition support enjoying “significant leverage” from income and selling fixed the company’s planetary marque recognition, “best-in-class” nationalist relations strategy (Airbnb receives a batch of escaped publicity each clip an announcement is made) and a loyal lawsuit base.

• A dilatory instrumentality to moving successful the bureau and indications that astir companies volition instrumentality a hybrid enactment exemplary should springiness U.S. consumers the quality to question much often successful the post-pandemic world. U.S. bureau occupancy arsenic of the extremity of June was conscionable 31% of pre-pandemic levels, Mollins said.

Although U.S. bureau occupancy tin beryllium expected to summation implicit the 2nd fractional of the year, “we judge hybrid enactment models volition go a meaningful portion of the back-to-office crippled program with a PWC survey indicating that 60% of executives judge employees should beryllium successful the bureau 3 days a week oregon less,” Mollins wrote.

• Upward revisions to fiscal metrics should continue, providing valuation enactment and keeping investors constructive connected the stock, Mollins said. And helium expects much of the aforesaid going forward.

For example, the FactSet statement for second-quarter nights and experiences booked has improved to 77.9 cardinal from 72.3 cardinal astatine the extremity of the archetypal quarter, the gross statement has improved to $1.19 cardinal from $955 cardinal and the gross booking worth (GBV) statement has climbed to $11.16 cardinal from $8.93 billion.

• Mollins believes Airbnb warrants a “very healthy” valuation premium comparative to its adjacent group. He said it’s wide that investors don’t worth Airbnb arsenic an online question bureau (OTA), truthful helium adjusted his ain valuation of the institution to beryllium much typical of however the broader concern assemblage values the stock.

The ratio of Airbnb’s endeavor worth to statement 2022 gross estimates is 15.4%, according to FactSet, portion the EV/sales ratio for OTAs Booking Holdings Inc. BKNG, +0.74% is 10.0 and for Expedia Group Inc. EXPE, -1.64% is 3.6.

“Our content that Airbnb’s elevated valuation…is present to enactment with the institution possessing galore arrows successful its quiver to thrust further topline upward revision momentum for years to come,” Mollins wrote.

Meanwhile, Airbnb’s banal has mislaid 1.0% twelvemonth to date, portion Booking shares person slipped 0.2% and Expedia’s banal has rallied 24.2%. The S&P 500 scale SPX, +0.09% has climbed 16.9% this year.