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Airbnb stock has dazzled and intrigued investors in growth stocks since its Nasdaq debut in December 2020. From its initial public offering price of $68 per share, ABNB stock soared as much as 223%, hitting an all-time high of 219.94 on Feb. 11, 2021. Yet the performance since then has largely disappointed.
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In 2021, the travel industry faced the challenge posed by multiple strains of Covid-19, including the delta and omicron variants. But 2022 is a different story; known cases of Covid-19 have fallen sharply in most continents. Many countries have completely ended quarantine and testing requirements for incoming travelers who show proof of full vaccination.
Heavy crowds at large airports across the U.S. during the summer pointed to a swell of tourism. And the autumn travel season appears solid, based on comments made by large airlines on third-quarter results.
“I am officially announcing that the Covid pandemic is over for the travel industry,” Steve Glenn, head of ExecutiveTravel.com, wrote in a weekly newsletter for the week of Oct. 24.
Airbnb Stock: Throttled On Earnings
Good news for Airbnb (ABNB), even as shares struggle to fight their way slowly higher. The longer-term downtrend remains in place. But has ABNB pegged a low in 86.71? Still hard to know right now, especially as the stock has now plunged 20% for the week, wiping out a nice rebound off its near-term low of 99.71.
As seen on a daily chart, Airbnb slid more than 7% in active turnover Monday. Big drops like that make it awfully difficult for ABNB to stay on the north side of its 50-day moving average. Then, shares gapped sharply lower Wednesday after the company reported third-quarter results.
The San Francisco-based firm earned $1.79 a share, up 47% vs. a year earlier and well beyond the consensus view of $1.46. Revenue jumped 29% to $2.88 billion, also beating views of $2.84 billion. But the midpoint of the company’s Q4 top-line forecast of $1.80 billion-$1.88 billion fell slightly short of views.
Airbnb’s gross bookings totaled $15.6 billion, a 31% rise year over year. The company logged 99.7 million nights and booked experiences, up 25% vs. a year ago. Airbnb saw a 5% increase in the average daily rate of $156, and up 12% excluding currency headwinds. The take rate came in at 18.5%, consistent with the year-ago period.
“Growth in our supply compared to pre-pandemic periods was strongest in non-urban areas, where guest demand was highest,” the company said in a Q3 news release. “And as demand returns to cities, we also saw a return to growth in total urban supply.”
Airbnb generated $960 million in free cash flow, net income of $1.2 billion and adjusted EBITDA (earnings before interest, tax, depreciation and amortization).
According to Yahoo Finance, the Street’s full-year profit forecast keeps inching higher. Analysts on consensus now see profit of $2.51 a share for 2022 vs. a net loss of 57 cents last year, and $2.80 for 2023, up 12%.
Meanwhile, data collected by Visible Alpha shows the Street forecast the company logging 99.88 million nights and experiences booked in the third quarter, up 25% vs. a year earlier. So, Airbnb missed on that metric by a tad.
Until this past week, ABNB’s relative strength line had resumed its climb since June. In other words, the stock had been outperforming the S&P 500 since over the past four months. Not anymore.
Airbnb Stock Today
Clearly, ABNB remains deep in base-building mode and is trying to bottom out. Shares went public at $68 a share in December 2020.
The 50-day moving average traces, on a daily chart, a stock’s price trend over the 50 most recent trading sessions. Before a potential breakout to new highs, you’d like to see a growth stock rise above its 50- and 200-day lines and pull them higher.
So, is Airbnb stock a buy now? Or is it time to cut losses and sell?
This story analyzes all facets of the innovator in leisure travel in terms of fundamentals, technicals and mutual fund ownership. All of these elements get inputted into CAN SLIM, IBD’s research-driven seven-point paradigm for successful growth stock investing.
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Attractive Business Model
The San Francisco-based firm’s disruptive business model: Allow house and condo owners turn their properties into short-term rentals. The idea has hatched plenty of competitors. Even large hotel chains offer similar properties in addition to their standard lodging accommodations.
On the Feb. 23 episode of IBD Live on Zoom, Jason Thomson, portfolio manager at O’Neil Capital Management, noted that millennials’ desire to travel in large groups and desire to make last-minute plans make the Airbnb offering especially attractive. And that has not gone unnoticed by the major hotel chains.
“We have millions of Airbnb hosts who offer nearly every type of home in nearly every community around the world,” the company wrote in a Q4 news release. Executives also noted that guests are “discovering thousands of small towns and rural communities on Airbnb” while also returning to cities. Gross nights booked at urban locales accelerated vs. Q3 and “have nearly recovered to Q4 2019 levels.”
In the first quarter of 2022, Airbnb saw 102.1 million nights and experiences on its platform, and that surpassed pre-pandemic levels. Activity in North America, EMEA (Europe, Middle East and Africa) and Latin America drove the results. Gross booking value surged 67% year over year (up 71% excluding forex changes) to $17.2 billion.
Second-quarter results highlighted a quarter-to-quarter increase, albeit modest, in total nights and experiences booked to 103.7 million, up 25% year on yea. Gross booking value rose 27% vs. a year ago to $17 billion. Net income of $379 million hit the highest profitable for any second quarter in company history.
On Aug. 31, the company announced that over the past couple months, more than 48,000 Airbnb hosts offered temporary stays to refugees in 160 countries and regions. Among these stays, 100,000 people fleeing Ukraine found stays through Airbnb.org.
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ABNB Stock Analysis: Is Relative Strength On The Mend?
Airbnb’s Relative Strength Rating is less than mediocre and has plunged in recent days to a 20 on a scale of 1 to 99. That rating was 90 in February. The current RS rating means ABNB outperforms just 20% of all companies in the IBD database over a 12-month time frame.
MarketSmith data shows Airbnb stock’s 3-month RS Rating jumped to a respectable 92. But as of Thursday’s close, it has cratered to an 8.
You generally want to home in on companies that show an RS Rating of 85 or higher. Why? That way you’re selecting stocks already showing strength ahead of a potential breakout to new highs and a profitable price run. An 85 Rating means a stock is already ranking in the top 15% in terms of stock price strength. When it comes to picking high-flying growth stocks, those with superior price strength tend to make new highs, then keep going higher.
Keep an eye on the Accumulation/Distribution Rating. Due to Monday’s heavy-volume decline, Airbnb gets a slightly positive grade of C+ on a scale of A to E. Yet this is likely to wither too. The proprietary Accumulation/Distribution grade measures the amount of heavy institutional buying vs. selling over the past three months. A grade of C+ or higher denotes net institutional buying over the past 13 weeks; a C- or lower points to net selling.
If you want a stock that is eagerly getting scooped by mutual funds, banks, college endowments and the like, prefer those with an A or B grade before you buy.
For now, Airbnb’s 75 Earnings Per Share Rating is rising mildly. In most cases, you’d prefer companies with an EPS score of 80 or higher. The SMR Rating, analyzing sales, profit margins and return on equity, moved up to a C grade, neutral on a scale of A to E.
The I In CAN SLIM: Institutional Ownership
Fortunately, mutual funds continue to accumulate ABNB stock.
MarketSmith data shows the total number of mutual funds owning a piece of Airbnb keeps rising. It hit a record 1,584 funds in the June-ended quarter of this year, up from 658 in Q4 2020. In the third quarter, as many as 1,575 funds owned ABNB shares.
Top funds holding a stake include Fidelity Blue Chip Growth (FBGRX), Harbor Capital Appreciation (HACAX), PGIM Jennison Growth (PJFAX), Marsico Focus (MFOCX) and Artisan Developing World (ARTYX). ABNB makes up 5.1% of Artisan Developing World’s assets.
Fidelity Contrafund (FCNTX), JPMorgan Large Cap Growth (OLGAX), Franklin Growth (FKGRX) and Wells Fargo Growth (SGRAX) — all members of the IBD Mutual Fund Index — hold positions. At the end of Q3, Contrafund grew its stake to a little bit more than 3 million shares, according to MarketSmith.
Management owns 2% of Airbnb stock. The float, now at 387 million shares according to MarketSmith, has risen sharply. The float makes up almost 60% of the 648.7 million shares outstanding. So, individual investors should prepare for secondary offerings of closely held shares that could hit the stock in the future.
Why The 2021 Breakout Failed
From September to October 2021, a handle formed on ABNB’s deep cup pattern. This offered a proper entry point at 177.06. A handle simply denotes a relatively quiet pullback after a stock falls sharply in price, then rebounds close to all-time highs. This last shakeout of disgruntled or uncommitted holders clears the decks for a first-class breakout.
On Nov. 4, right ahead of Q3 results, Airbnb stock stretched past this aggressive entry. Then on Nov. 5, the stock staged a bullish breakaway gap.
This means the right time to buy shares was near 194, when Airbnb stock rallied sharply in that session’s first five minutes of trading, then kept going past the high of the first 5-minute intraday trading bar. Please read more about the technique of buying a breakaway gap in this Investor’s Corner. Buying breakaway gaps work best in a strong bull market, especially coming out of a deep or long correction.
But the threat of Covid-19’s omicron variant shook the world, and the stock dove sharply below the 177.06 and 194 buy points. The negative reversal forced new buyers to sell shares to keep losses small.
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Airbnb Stock Chart Analysis Today
For now, a very deep cup pattern is taking shape. It holds a 212.68 entry point, 10 cents above the left cup’s peak price. But this means ABNB needs to first rally more than 98% just to approach that buy point.
So for now, ABNB is not a buy.
However, in the very near term, ABNB has now carved out a seven-week cup with handle within its deep correction.
The left side of the cup pattern formed in just two weeks — the weeks ended Sept. 16 and 23. The right side of the cup didn’t see heavy volume on rising weeks in price, and that’s what you’d like to see. Sharp weekly advances in heavy, above-average turnover strongly hint at unabashed accumulation of shares by mutual funds, banks, hedge funds, large investment advisors, pension plans, college endowment funds and the like.
To learn how to quickly spot such institutional demand, read more about the I in CAN SLIM at IBD University.
The handle portion, signifying a final shakeout of weak holders, had shown a mild decline of just 7%. That’s good. The action has delivered a potential aggressive buy point at 120.81, or a dime above the handle’s high of 120.71 marked on Oct. 18. But ABNB is sinking further below this breakout point.
At some point, Airbnb may stage a strong breakout to 52-week highs. When that happens, always stay disciplined with position management; cut losses short if the stock breaks expectations. William O’Neil, founder of Investor’s Business Daily, discovered during decades of research that the biggest stock market winners rarely fall more than 7% to 8% below a proper buy point.
Also watch to see how ABNB handles a potential wave of sellers at the 120-to-127 level. If the stock can weather this overhead supply, then it will offer evidence that sellers are weakening and the buyers are getting more enthusiastic. You want to see the balance of supply vs. demand tilt toward the latter.
Also, the June 8 high of 125.51, the Aug. 11 peak at 127.09, and the Sept. 15 high of 129.38 have presented key levels of upside price resistance.
Over the next few weeks and months, if ABNB produces a better looking pattern, then perhaps a cup base deep within its correction may surface.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
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