As a business move, this has pluses and minuses. Airbnb wont be making any money from facilitating free rentals, and it will rely on donations from CEO Brian Chesky and its charity Airbnb.org to fund the project. On the other hand, the positive PR that Airbnb will earn from this move is invaluable.
Meanwhile, beyond PR, Airbnb got some good news yesterday when analysts at DA Davidson reiterated their buy rating and $174 price target on the stock. Second-quarter results at the housing facilitator were strong, and Q3 looks on track to be Airbnbs strongest revenue quarter ever, with revenue likely to top what Airbnb collected even in Q3 2019, before the pandemic struck.
Image source: Getty Images.
The big question now is: Should you buy it?
At $101.5 billion in market capitalization, even with roughly $5 billion in net cash lowering its enterprise value to $96.5 billion, Airbnb still sells for a lofty valuation of 64 times trailing free cash flow of $1.5 billion. On the other hand, analysts are broadly in agreement with DA Davidson that Airbnb has a lot of room to grow, and the consensus seems to be that Airbnb will more than double its free cash flow over the next four years.
Still, that works out to only about a 22% compound annual growth rate in free cash flow (and an enterprise value-to-free-cash-flow-to-growth ratio of about 2.9, which is kind of high). Its worth pointing out that when calculated according to generally accepted accounting principles (GAAP), Airbnb remains an unprofitable company.
Long story short: While Airbnb is getting good press today and deserves praise for its good deed -- and appears to be racking up high marks as a growth company -- Airbnb stock is not yet an obvious bargain.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.>
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