Airbnb stock has intrigued investors searching for the best growth stocks since its December 2020 market debut. From an initial public offering at $68 per share, ABNB soared 223% in just over two months. The Nasdaq-listed large cap hit an all-time high of 219.94 on Feb. 11, 2021.
↑X Bill O'Neil Advice For Spotting Accumulation In Market Rally See All Videos
The performance since then? The action from late February to mid-May clearly disappointed. In July, the stock showed its best action in five months. That month, shares hit new 52-week highs, a bullish change.
However, today it's showing seesawing action, much like the major equity indexes.
So, is Airbnb stock a buy now? Or is it time for those who have held a paper loss to cut losses and sell?
This story analyzes all facets of the company in terms of fundamentals, technical strength 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.
Is Airbnb Stock A Buy?
In mid-August, Citigroup raised its price target on ABNB stock to 160 from 135 while maintaining a buy rating.During the summer, Airbnb stock also rallied on news it is getting a spot in the S&P 500.
On Sept. 8, ABNB completed a third straight week of gains. As seen in the weekly chart below, Airbnb flew 9.9% higher in weekly volume that jumped 88% above its 10-week moving average.
But the past six weeks have been tough for Airbnb and fellow travel stocks. Last week, Airbnb stock finished down 6% for the week and registered its third slide in four weeks.
The stock has also caved below the 200-day moving average, a key long-term technical level of support and resistance. Generally, the strongest stocks spend most of their days above their 200-day lines, not below them.
Yet overall, even after the Federal Reserve raised interest rates for a fourth time this year in late July, ABNB continues to hold a solid gain since Jan. 1, up more than 40%.
For the month of June, ABNB stock rallied almost 17%, the strongest monthly gain since January. Then in July, shares bolted another 19% higher. Given those stout gains, it may not surprise some investors to have seen Airbnb stock slide in August, down more than 13.5%.
Shares rebounded in limited fashion last month, up 4.3% in September. But October has been very rough sledding, with shares falling more than 12% so far.
From its May low of 103.55, ABNB had rallied almost 50%. It certainly is taking the time needed to digest recent large gains. Clearly, a new base is forming.
Stock Market Forecast For Next 6 Months: What Investing Pros Are Monitoring Closely Now
Q2 Earnings Shine
After the close on Aug. 3, the company delivered solid second-quarter results.
Earnings ballooned 75% higher vs. a year earlier to 98 cents a share. That marked the fifth quarter in a row of robust profit growth. But growth in the top line continued to decelerate, a worrisome sign. Sales picked up 18% to $2.48 billion. The size of Airbnb's sales increases slowed for the sixth straight quarter.
In the December quarter of 2021, revenue leapt 78%, then decelerated to gains of 70%, 58%, 29%, 24%, 20% and 18% in the just-ended second quarter of 2023.
Growth in total nights booked rose 11% to 115.1 million, but it reportedly missed the consensus forecast. The company had forecast a slight decline in the average daily rate of rentals on its network. Instead, the daily rate edged up 1% vs. a year ago and up 42% vs. 2019 levels.
Look for Q3 results to arrive on Nov. 1.
Why Airbnb Stock Moved In May
Strong gains early this year — and growing signs the innovator in travel accommodations was building a new base — suggested the tide had been turning. But Airbnb stock showed in early May how earnings season can be make-or-break time for any stock.
In mid-February, ABNB shares cruised to nine-month highs. They jetted 13% higher in heavy volume the day after the company released fourth-quarter results on Feb. 14.
At one point in February, ABNB stock rose to 144.63. That came close to wiping out half of the 138-point decline from its 219.94 peak.
Shares then sold off following first-quarter results. On May 15, Airbnb stock dropped to 103.55, a four-month low.
Yet the stock did a good job in retaking not only its 50-day line but also its 200-day moving average, a critical long-term technical level. Good stocks trade on the north side of their 200-day, not the south side. Plus, ABNB's 200-day line appears to have bottomed out after a months-long decline.
William O'Neil, Legendary Investor And IBD Founder, Dies At 90
First-Quarter Results Summary
Airbnb reported a big beat in earnings for the first quarter at 18 cents a share vs. the consensus estimate of 7 cents. Sales rose 19.2% to $1.82 billion, well ahead of Wall Street's $1.6 billion view.
However, its second-quarter top-line forecast of $2.35 billion-$2.45 billion showed a midpoint slightly below expectations of $2.42 billion. The forecast of 12% to 16% growth also suggests a deceleration in revenue growth ahead.
In its shareholder letter, management noted these milestones:
- Adjusted EBITDA (earnings before interest, tax, depreciation, amortization) up 14% to record $262 million
- Free cash flow $1.6 billion, up 32% year over year
- Gross bookings up 19% to $20.4 billion
- 121.1 million nights and experienced booked, up 19% YOY
The company also noted that it grew supply of rooms and experiences by 18%, with the fastest growth coming in North America and Latin America. It also introduced Airbnb Rooms with an average of $67 per night for these accommodations, usually found inside a host's home.
By region, the company saw the biggest year-over-year growth in Asia Pacific, up 48% in terms of nights and experienced booked. The lifting of zero-Covid policy in China helped immensely.
After the Q1 report, a slew of analysts trimmed their price targets. Goldman Sachs, among the most bearish on the sell side of Wall Street, cut its price target to $97 from $98 and kept a sell rating. Morgan Stanley reduced its target to $95 and kept an underweight rating. On May 17, Argus Research reportedly kept its buy rating, but shaved its price target to $124 from $144.
Inside The Big Picture: The Market's New Bullish Turn
Airbnb Q4 Results, 2023 Outlook
In the fourth quarter of 2022, the company's earnings soared 500% vs. a year earlier to 48 cents a share. That walloped Wall Street expectations for a profit of 25 cents. Revenue jumped 24% to $1.90 billion, also beating the consensus estimate.
The Q4 results extended a streak of stout earning increases for the travel firm; now, Airbnb has posted a profit in six of the past eight quarters.
"During the height of the pandemic, we made many difficult choices to reduce our spending, making us a leaner and more focused company, and we've kept this discipline ever since," management commented in the shareholder letter. "We ended 2022 with 6,811 employees, and currently expect to continue hiring at a judicious pace in 2023. Compared to 2019, our headcount is down 5% while our revenue is up 75%."
Full-year revenue jumped 40% to $8.4 billion. Net income hit $1.9 billion for the year, the company's first full year of profit on a GAAP basis.
Wall Street has boosted earnings estimates. Analysts on consensus project a full-year profit forecast for Airbnb of $4.89 a share, up 75% vs. 2022, then rising another 10% to $5.38 in 2024. The profit forecasts mark a positive change from its net loss of $7.62 a share in 2020 and a 57-cent loss in 2021.
Where Could The Market Go From Here? Consult IBD's Big Picture Each Day
Travel Sector Rebounding
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.
In 2021, the travel industry faced the challenge posed by multiple strains of Covid-19, including the delta and omicron variants. But 2022 weaved a different yarn. Known cases of Covid-19 fell sharply in most continents. Countries that depend on the tourism economy have ended quarantine and testing requirements for incoming travelers who show proof of full vaccination.
Airbnb's stock rebound in early 2023 came amid heavy negativity on Wall Street.
In mid-December, Morgan Stanley downgraded Airbnb to underweight from equal weight and cut the price target to 80 from 110. Also, the weakened housing market has made a negative impact on the short-term rental market, according to this Wall Street Journal piece.
The New York Post reported Airbnb and several of its hosts sued New York City to stop the local government from enforcing "extreme and oppressive" registration requirements. Airbnb alleges the new rules, which took effect in January and slated for enforcement in July, could put the company out of business in the important tourist city and urban jungle of hotels and inns.
"It is a near impossibility for lay New Yorkers to certify compliance... with a maze of complex regulations," the lawsuit noted, as quoted by the New York Post. Only nine New Yorkers out of a pool of 35,000 Airbnb hosts have been approved to rent out their residences.
The new city regulations went into effect in September.
In a Wall Street Journal piece published in late September, Allison Pohle quoted research by AirDNA that noted 17,000 fewer short-term listings in New York between June and September.
Cheap Stocks To Buy And Watch Now
Airbnb Stock Analysis: Is Relative Strength On The Mend?
Airbnb's Relative Strength Rating has withered to a mediocre 65 on a scale of 1 to 99, down sharply from 92 several weeks back. It had plummeted to a 39, then rebounded with force, according to IBD Stock Checkup. The score means ABNB outperforms just 65% of all companies in the IBD database over a 12-month time frame.
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 RS Rating also means a stock is already ranking in the top 15% in terms of stock price strength.
MarketSmith data shows Airbnb stock's 6-month RS Rating has cooled further to a lowly 36, also on a scale of 1 to 99.
Keep an eye on the Accumulation/Distribution Rating. Airbnb shows a highly negative grade of D- on a scale of A to E. 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.
The 80 Earnings Per Share Rating rose from 74 after Q4 results and continues to lift higher. In most cases, you'd prefer companies with an EPS score of 80 or higher. Given the 75% boost in Q2 earnings, expect the EPS Rating to rise.
Airbnb stock's SMR Rating, analyzing sales, profit margins and return on equity, moved up to a superior A grade on a scale of A to E.
All in all, ABNB now chalks up an 88 Composite Rating on a scale of 1 to 99, according to IBD Stock Checkup. Good, but not fantastic. Typically, the best growth stocks wield a Composite score of 90 or higher at the beginning of their sharp price runs.
The I In CAN SLIM: Institutional Ownership
MarketSmith data shows the total number of mutual funds owning a piece of Airbnb keeps rising. It has hit a new record of 1,963 funds as of the end of the third quarter this year, way up from 658 in Q4 2020. Overall, funds own 45% of the 641 million shares outstanding, up from 40% recently.
Fidelity Contrafund (FCNTX), JPMorgan Large Cap Growth (OLGAX), Franklin Growth (FKGRX) and Harbor Disruptive Innovation (HNMGX) — all members of the IBD Mutual Fund Index — hold positions as of the end of Q3.
At the end of Q3, Contrafund grew its stake to 3.75 million shares vs. 3.1 million in September a year earlier, according to MarketSmith. JPMorgan Large Cap jacked its holdings to 3 million shares in Q1 from 800,000 shares in Q4 last year. The fund cut the stake in Q2 to 1.91 million shares and has held steady.
Management owns 2% of Airbnb stock. The float, rising to 426 million shares according to MarketSmith, has risen but still makes up just 66% of the 647.3 million shares outstanding. So, individual investors should prepare for secondary offerings of closely held shares that could hit the stock in the future.
5 Cheap Stocks To Buy And Watch: Direct From The IBD Stock Screener
Airbnb Stock Chart Analysis In 2023
In early February this year, ABNB completed a new base and formed a handle on the cup. This produced a valid entry point at 121.40, the top of the handle.
Given the gap-up at the market open on Feb. 15, an investor couldn't purchase shares near the 121.40 handle buy point. So, was there an alternate buy point amid this surprise rally? Yes.
Based on IBD research, powerful breakaway gaps following positive news suggest that the rally can only get stronger. Thus, looking at the early trading in Airbnb stock via an intraday chart, the first 5 minutes of trading showed ABNB hitting a high of 135. Once it surpasses this first 5-minute bar's high, the stock can be bought.
It's important to buy as close to the alternate entry as possible — in this case, no more than 5% above the 135 buy point at the time.
For more on the breakaway gap, please check out this Investor's Corner piece.
Not All Breakouts Work Out
Amid a general decline in the major indexes, the alternate buy point did not turn out favorably. Indeed, alternate entries do not guarantee success, especially when market conditions get choppy.So, keep a close eye on changes in the IBD outlook on stocks. Remember, breakouts have the best chance of working when the outlook notes a confirmed uptrend.
The ensuing correction, however, held to less than 30% from a February high of 144.63. Simply put, it proved milder than in past declines. Bullish.
Also, in the first six months of this year, ABNB notched an increasing number of sharp weekly advances in heavy, above-average turnover. For instance, ABNB stock rallied 13% in higher turnover during the week ended Jan. 13. And in June, a pair of big weekly gains ensued in heavy or accelerating turnover.
Therefore, such price-volume action hinted at growing accumulation of shares by mutual funds, banks, hedge funds, large investment advisors, pension plans, college endowment funds and the like.
Is The Market In A Strong Environment To Buy Stocks, Or Under Pressure? Check Here
Airbnb Stock Today: A New Chart Pattern Emerges
As the stock market cooled off in late July to August, so did ABNB. By Aug. 18, the stock forfeited all of its gains from a 122 trendline entry point. At the session low of 123.38, Airbnb fell nearly 21% from its year-to-date peak of 154.95.
When a growth stock looks likely it will give back all of a gain of at least 10% from a proper buy point, it makes sense to exit the position to salvage at least some profits, then keep watching the stock for a new entry.
Therefore, Airbnb stock is not a buy now.
However, ABNB has spent enough time to form a bullish new base, a two-month double bottom. Using the middle peak in between two distinct sell-offs,a new buy point of 151.16 has emerged.
A Bullish Change
Overall, the 25% decline from the 52-week high of 154.95 is even milder than the correction that produced the prior base from February to June. This lighter decline indicates less selling pressure and strengthening demand.
Airbnb has jumped into key IBD growth stock lists in recent months too, including IBD Big Cap 20.
As noted above, keep a close eye each day on IBD's current outlook for stocks. The best time to buy is when IBD highlights a confirmed uptrend, which hints that a tradable rally is under way.
From the March 29 follow-through day, the outlook turned bullish for months. That in fact is also the best time to actively screen for potential big winners and buy stocks that show powerful breakouts.
In recent weeks, the outlook dropped to the most negative zone, a market in correction.
Keep an eye on changes in the current outlook for stocks here.
Final Thoughts
Airbnb has made the case that it's become a stock market leader in 2023 with its strong breakout to 52-week highs. Nevertheless, 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, such as Chrysler in the early 1960s, fall more than 7% to 8% below a proper buy point.
Please follow Chung on Twitter: @saitochung and @IBD_DChung
YOU MIGHT ALSO LIKE:
Here Are The Current Long-Term Leaders
What's New Inside Investor's Corner
IBD 50 Stocks To Watch
This Is Still The Golden Rule Of Investing
Airbnb Joins Leaderboard As A Half-Size Position; Which Stocks Also Make The Lists?
