The trend toward long-term stays plays to Airbnb's strengths.
The travel industry has rebounded much faster than investors might have expected. While the share prices ofAirbnb (ABNB 0.33%)and Marriott International(MAR 0.45%) have lagged that recovery, the recent underperformance could set up market-beating returns over the next few years.
Marriott has been the better performer over the last two years, up 17%, beating Airbnb's share price, which is down 21%.
Given the travel industry is expected to grow 8.5% per year through 2026,both stocks offer long-term upside, but I would go with Airbnb. The tech-driven rental platform offers many advantages over traditional hotel chains. Here are three reasons I believe Airbnb is a superior investment.
1. Airbnb has greater supply available to meet growing demand
Marriott is the leading brand in the North American hotel industry. It had 1.5 million rooms across its brands in the second quarter. That gives Marriott a 16% share of the U.S. hotel market, based on lodging industry data at the end of 2021.
However, Airbnb offered 6 million listings on its website at the end of 2021.This gives Airbnb a significant advantage over large hotel chains in being able meet surges in demand, especially during special events in major cities that cause hotels to fill up.
Airbnb can expand supply quickly as demand increases in a location. Hosts will see the demand as an opportunity to earn income off their unused property, which expands Airbnb's capacity without any expenditure by the company.
It's clear the skyrocketing growth of Airbnb over the last decade has forced Marriott to respond. In May 2019, the company launched Homes & Villas by Marriott, which allows Marriott Bonvoy members to rent private homes.But Airbnb's faster rate of growth over the last few years suggest Marriott isn't much competition for the tech-savvy travel platform.
2. Airbnb is growing faster than Marriott
The advantage in supply might explain why Airbnb has experienced a faster rate of recovery since the end of 2020 than Marriott. Over the last few years, Airbnb's revenue growth has nearly doubled the rate of increase of Marriott.
Data by YCharts
Since Airbnb is a technology platform that doesn't require massive amounts of money to be spent on real estate and maintenance, it can generate a much higher free cash flow margin relative to revenue.
Over the last four quarters, Airbnb generated $1.5 billion in free cash flow on $7.4 billion in revenue, which comes from service fees charged to hosts. Marriott produced $1.9 billion in free cash flow, but most importantly, the larger amount represents a lower margin against nearly $18 billion in revenue.
Data by YCharts
3. Long-term industry trends favor Airbnb
Another win for Airbnb is how it is meeting the growing demand for long-term stays. Even before the pandemic, long-term stays of one month or longer were Airbnb's fastest-growing category.
One advantage for Marriott is its brand and large hotel footprint, and the company has leveraged that advantage well with its Bonvoy loyalty program. Marriott had over 160 million members at the end of 2021.
However, Airbnb is building an iconic brand of its own. More guests are using Airbnb to rent places for longer periods even as more people return to the office. In fact, stays of 28 days or longer account for a fifth of Airbnb's business.
Airbnb checks all the boxes
Marriott has a large hotel footprint, with brands ranging from affordable hotels to luxury experiences like St. Regis and Bulgari.But Airbnb's open platform, where anyone with an in-demand property can list it for rent and earn extra money, is driving incredible growth for the company.
The only downside for Airbnb is its expensive-looking stock price. At the time of writing, Airbnb traded at a forward price-to-earnings ratio of 38, compared to Marriott's multiple of 24. But Airbnb's competitive advantages in capacity and ability to scale up to meet demand from the millions of hosts on the platform are worth paying up for.
Investors should expect Airbnb's faster rate of growth to deliver better returns than Marriott's over the next 10 years. Airbnb just might be the best travel stock to buy in 2022.
John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Inc. The Motley Fool recommends Marriott International and recommends the following options: long January 2023 $115 calls on Marriott International. The Motley Fool has a disclosure policy.
