Michal Semotan: Now Is The Best Time To Add ABNB To Your Portfolio
By Michal Semotan
Published:
STOCKS: ABNB, RR.L, BKNG, MAR, HLT, H
How and when did you find this investment opportunity ABNB?
Tourism was strongly hit in 2020 and 2021 due to Covid 19 restrictions. I saw this as an opportunity because a lot of people would want to travel again when Covid regulations were lifted. It was my big idea that the tourism industry should go back quickly to pre-Covid numbers on growing demand for accommodation, air travel and additional services (airport services – for example, Flufhafen Wien), aircraft manufacturers or suppliers (Airbus, Rolls-Royce). Only Airbnb provides excellent platforms for short-term as well as long-term rentals (1 month and more). Long-term rentals are popular mainly in the US due to work from home – hotels are expensive while flats and houses are reasonably priced. The Airbnb system is safe and ideal for both sides – renters as well as travellers and others wishing to rent a flat or a house.
What were the main reasons (data) that convinced you to invest in this stock?
My idea was supported by strong Airbnb numbers:
Very strong growing revenue numbers, EBITDA, plus a high EBITDA margin. Travellers prefer private accommodation to big hotels because of more social distance after the Covid-19 experience. Airbnb numbers were strong not only when compared to 2021/2020 but also in comparison to pre-Covid numbers.
Despite a strong US dollar, Airbnb reported excellent results for Q3-2022:
- Booked nights 99.7m (+25% y/y)
- Gross booking value USD 15.6bn (+31%)
- Revenue USD 2.9bn (+29% y/y)
- Net income USD +1.2bn (+46% y/y)
- Quarterly highest EBITDA ever +1.5bn USD
- Free cash flow USD 960m
ABNB peaked in February 2021 at $212, now the price is around $100. Why is the stock falling?
Airbnb graph May 2021-January 2023 (Bloomberg):
The maximum price was USD 207.21 (15 Nov. 21) and the minimum price was USD 82.49 (28 Dec. 22) There was a negative sentiment in the stock market in 2022 because high inflation was coming. The Fed increased interest rates, which was a negative factor in equity valuations as higher interest rates pushed the stock market and equity valuations lower.
Covid restrictions in different parts of the world limited potential for stronger Airbnb numbers (mainly the Asian region)A war in Ukraine also weighed on Airbnb numbers in the regionSome analysts have predicted recession in USA and other parts of the world, and recession could lead to lower demand for travel and rental accommodation
Why did you invest in ABNB and not in BKNG?
Airbnb was my preferred stock in the travel segment because of top platforms for private accommodation rentals and because of travellers’ preference for more private space after the Covid 19 experience – private accommodation is safer and better than big hotels, where you meet a lot of people…
Have you ever thought about investing in hotel stocks, such as Marriott (MAR), Hilton (HLT), or Hyatt (H)?
No.
At what price did you buy the stock?
I bought my position between May and August 2021, at the average price of around USD 140. Then we took profit on part of our position (approx. 1/3) in March 2022, at around USD 175. Later on, we added more Airbnb shares in June and July 2022 (at USD 90-100 per share). At this moment, we actively manage our position and we stay long in 2023 because we believe that there is upside potential as demand for travel is booming (China is reopening for travel).
What is the ROI on this particular stock since you bought it?
The ROI of Airbnb was still negative, but we expect this will change in 2023.
How have you managed this stock in your portfolio since the purchase? How big (in %) is the position in your portfolio? Have you already sold a part of the position? If yes, then when, at what price, and why?
As I’ve already mentioned, we actively manage our position. At present, Airbnb is among our Top10 positions and it makes up around 3.5% of our portfolio (J&T Opportunity).
Is it the right time to buy ABNB now? And is it a good long-term investment?
Yes, this is the right time to add more Airbnb shares to a portfolio as we believe that strong demand for accommodation will continue and travellers will prefer apartments to big hotel names. Chinese tourists will contribute to greater demand after Covid restrictions in China were lifted. Current investment recommendations (source Bloomberg):
What are the biggest risks that investors should take into consideration when buying this stock?
The company is still not profitable on a full-year basis; there is a peak season during the summer. However, in our view, Airbnb numbers will continue growing and so we expect a net profit for 2023. Even the 4Q22 numbers may be strong, and then 2022 could be profitable.
What is your outlook for 2023 - 2024 for ABNB?
Strong travellers’ demand will continue as Chinese tourists enter the market after 2-3 years’ pause. This means that Airbnb is a growing company with strong revenue momentum and high EBITDA margin
What we see important for the company is maintaining long-term rentals, 1 month and longer (now around 20% of rentals)
