The 2024 Olympic Games in Paris had long been acknowledged as a potential watershed moment for Airbnb (NASDAQ:ABNB). But did the homestay giant miss its opportunity to cement its position as a travel and tourism market leader?
Airbnb’s strategy was clear, and advertising campaigns aimed to underline the firm’s USP as a provider of unique experiences that can’t be replicated elsewhere in the hospitality industry, with the tagline: ‘Why stay in a hotel on the touristy side of Paris, when you could stay in an Airbnb on the Paris-y side of Paris?’
However, one month before the Olympic Games, The Connexion reported that falling demand for Airbnb properties saw the average rate per unit drop by 32 per cent between April and June 2024.
These falling prices come off the back of a surge in listings throughout the city, with more than 15,000 extra properties made available on short-term rental websites in the Paris area since March.
The overall volume of visitors to Paris during the Olympic Games reached 11.2 million, but not to be outdone by Airbnb, many hotels in the city sought to drop their prices to avoid losing business.
Airbnb’s stock slipped 16.37 per cent in Q3 2024 at a time when investors would’ve expected more optimism sparked by the games. Now, with insider sell-offs and issues with falling demand, could the Airbnb boom be facing its biggest challenge yet?
Weaker profit as demand falls
One major contributing factor to Airbnb’s Q3 slide was the company’s weakening profit margins of US$555 million during the previous quarter compared to the $650 million reported over the same period in the year prior.
The weakening trend saw shares in ABNB slip 12 per cent after the bell, with the company blaming a weakening market amid economic uncertainty and New York’s crackdown on homestays.
With more Airbnb hosts implementing strict rules and higher hidden fees, the stock may have lost some of its advantages over traditional hotels, which could see more unwanted competition emerge.
Insider sell-offs
Although insider selling isn’t necessarily a cause for concern, it’s worth noting that Airbnb insiders were net sellers over the last year.
Airbnb co-founder Brian Chesky made the biggest insider sale within the last 12 months in a single transaction worth US$17 million.
In total, Chesky sold 307,690 shares over the past year with the average share price weighing in at US$143.
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In October, Aristotle Balogh, the chief technology officer of Airbnb, sold 600 shares worth US$81,198 while retaining ownership of 192,244 shares in the company.
Although insider sell-offs aren’t necessarily a sign of a struggling company, they can sometimes point to weakening confidence among stakeholders in a firm’s short-term performance.
Add to this the recent news that Mn Services Vermogensbeheer BV opted to lessen its holdings in Airbnb by 4.5 per cent during the third quarter and a trend of sell-offs appears to be forming both inside and outside the company. Should investors be concerned?
Airbnb remains a revenue machine
Despite its short-term concerns, Airbnb remains a highly profitable innovator in the travel and tourism industry.
“The Airbnb business model has proven extremely profitable, with the firm generating US$9.9 billion in sales in 2023, more than double its 2019 revenue before the pandemic,” highlights Maxim Manturov, head of investment research at Freedom24.
“The company sees significant growth potential, especially in the extended stay market, where stays of 28 days or more accounted for 17 per cent of booked nights in the first quarter, likely driven by flexible work schedules in the wake of the pandemic.”
Investors can also find hope in Airbnb’s high potential ‘Experiences’ feature, which offers an entirely unique holiday experience for users that traditional hospitality firms are currently unable to emulate at scale. However, expectations have so far been tempered by the company’s inability to work out how to sell the feature on its platform.
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With Airbnb’s profit-to-earnings ratio expected to fall as low as 14 from current levels by the end of 2027, the prospect of adding an underpriced innovative stock is likely to attract a number of institutional and retail investors alike.
While sell-offs have been a concern, Citi has maintained a more positive stance on Airbnb, placing a Buy rating on the stock and a price target of US$135.00.
Life after the Olympics
Although Airbnb may have anticipated a higher pace of bookings during the Paris Olympics, there’s plenty of optimism for the homestay stock that suggests its boom period is far from over.
Despite weakening demand and price competition from hotels, Airbnb’s revenues and innovative experience-focused pipeline suggest that the future remains bright for the stock. If ABNB remains under $150 over the short term, we may see more investors tempted to add the travel and tourism giant to their portfolios.
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