Airbnb Is Differentiated In Online Travel
Contributor since 2023 / 602 Followers
Summary:
- Airbnb’s potential lies in its unique accommodation offerings and strategic investment in AI, positioning it for long-term advantage over Booking Holdings and Expedia.
- Despite Booking Holdings’ operational scope, Airbnb’s appeal to millennials and focus on experiences, coupled with a strong balance sheet, highlight its differentiation and investment potential.
- With a favorable valuation and growth outlook, Airbnb stands out as a preferred investment, though cybersecurity and economic climate changes pose significant risks.
Thomas Barwick
Airbnb (NASDAQ:ABNB) has the potential to further evolve its niche focus in online travel. By focusing on unique experiences and harnessing its balance sheet to invest in AI-assisted travel booking, I believe it could have a leg up on peers Booking Holdings and Expedia over the long term.
Airbnb’s Differentiating Factor
From my understanding of the industry, Airbnb’s two main competitors are Booking Holdings (BKNG) and Expedia (EXPE). Both of these firms are older than Airbnb in quite some way, both with IPOs in 1999 compared to Airbnb’s in 2020. While Booking Holdings might seem like the greatest of the three on analysis of operational scope and financial considerations, Airbnb has a distinct offering of providing unique stays, focusing more intently on experiences than its two competitors.
In many respects, Airbnb appeals to millennials and those looking for non-traditional accommodation, while Booking Holdings and Expedia provide a more traditional portfolio of choices and are much more preferable for corporate travel than Airbnb.
I must admit that from my use of the platforms provided by these firms and research into the businesses, I find the distinction between them thin for Airbnb to be considered to have a wide moat in its operations. Instead, it is more realistic to view Airbnb’s differentiating quality as being relatively superficial. That does not mean that it isn’t important; I believe it is. But we should consider that when using Airbnb versus Booking.com the main difference, in my estimation, is the quality of the platform interface. I believe Airbnb wins in this regard, but in terms of accommodation offerings, the difference is subtle at this time.
Where I think Airbnb can excel is in the continued honing in on its specific niche of unique accommodation. In other words, it could capture the market more proficiently in excellent accommodation that you cannot find elsewhere.
Peer Analysis, Including Financials
Given the above commentary, take into consideration the following table of financials for a comparison of the three peers:
| Airbnb | Booking Holdings | Expedia | |
| Market Cap | $101.14B | $120.35B | $17.81B |
| 5Y Avg. Revenue Growth Rate (‘YoY’) | 29.92% | 17.01% | 11.87% |
| EPS GAAP Growth (‘FWD’) | 21.09% | 37.55% | 75.98% |
| Equity-to-Asset Ratio | 0.4 | -0.11 | 0.07 |
We can see from this table that Expedia has particularly strong future earnings growth estimates. I am a very long-term-oriented investor, and while SA’s Quant system puts Expedia as the only ‘Buy’ at the time of this writing, this seems too short-sighted for my investment style. I understand the weighting of this toward revisions and momentum, but my perspective is on long-term holding. I want to buy portions of businesses that I believe have exceptional long-term operational value, hopefully keeping them in my portfolio forever. Trading for price is not of much interest to me, as I want a lasting stake in the great progress of excellent enterprises.
My perspective is that while Expedia’s short-term returns should be very favorable, as expected on consensus, Booking Holdings and Airbnb may have the more reliable long-term prospects. I essentially base this on the premise that Booking Holdings and Airbnb seem to have higher quality offerings, in my opinion. What Expedia may offer, due to its smaller market cap, is more room for growth, but I am not convinced as I believe Airbnb and Booking Holdings will be able to iterate at a much more aggressive rate with the extra financing that comes with its larger market cap to introduce ever more sophisticated AI into its software experiences. I believe AI-assisted travel planning will be integral to the long-term user experience for software companies involved in accommodation provision.
Readers who know me well understand that I put a lot of value on a stable balance sheet. I believe it is not only a good protective mechanism against negative events that affect business performance but also allows more room for iteration and agility in adapting to consumer trends. It is clearly quite important for investors to understand that a better balance sheet at this time is valuable in the face of AI capabilities emerging. Airbnb may have a leg up in being able to finance its AI operations, which is incredibly important as consumers become more reliant on the ease of use of automated travel planning. This is another area that I think Airbnb is positioned to capitalize very well on, and the fact that it is popular with a younger audience is an even bigger plus because younger generations are much more technology-focused, which gives Airbnb further room to hone in on AI-assisted accommodation provision.
Valuation Considerations
Here is my comprehensive peer analysis for valuation, including discounted earnings, which I have chosen over cash flows because we are looking at the technology sector, where earnings correlate to a premium in investor sentiment common in the field over time.
| Airbnb | Booking Holdings | Expedia | |
| P/E GAAP (‘FWD’) | 36.72 | 20.81 | 14.1 |
| 3Y EPS CAGR Consensus Estimate (Dec 2024 – Dec 2027) | 16.06% | 13.39% | 19.78% |
| My 10-Year Growth-Stage EPS CAGR Forecast | 17.5% | 15% | 15% |
| My 10-Year Terminal-Stage EPS CAGR Forecast (In-Line With Typical Annual US Inflation) | 4% | 4% | 4% |
| My Discount Rate (My Low-End Annual Expected Total Portfolio Return) | 10% | 10% | 10% |
| My Fair Value Estimate | $191.3 | $3,340.62 | $194.4 |
| Present Stock Price | $161.94 | $3,609.33 | $131.75 |
| Indicated Margin of Safety | 15.35% | -8.04% | 32.23% |
From my display here, I conclude that Airbnb offers a very compelling investment opportunity at the time of this writing. Also, Expedia has very good value at this time, but my long-term outlook for the company is not as good as Airbnb, which I expect to achieve higher growth. As a result, of the three, my favorite investment, and the one I am considering for my portfolio, is Airbnb.
Risks To Consider
While my outlook on Airbnb is clearly positive, there are significant risks with the firm, including a rising new threat of cybersecurity as it relates to advances in criminal capabilities with the use of quantum computing. While this risk may seem nuanced, it adds significant upcoming expenses for Airbnb and all firms in my peer analysis in rigorously protecting customer and enterprise data. Failure to do so could be damaging not only to customers but also to the reputation of the platforms that are successfully breached.
Additionally, we must remember that these businesses are highly prone to changes in economic climates that negatively impact travel. While the COVID-19 pandemic seems to have passed, it is becoming more concerning as the years go on that climate issues could become more prevalent. As such, if travel is affected because of natural disasters, Airbnb would be significantly impacted. This also applies if wars break out more regularly that inhibit travel to specific regions.
Conclusion
In summary, I consider Airbnb to be the most attractive investment of the three peers, including Booking Holdings and Expedia. I believe its balance sheet, my future growth expectations and the associated margin of safety from a discounted earnings standpoint position it as a very compelling investment choice. While the differences in the platforms at this time are subtle, Airbnb has more scope to hone in on a niche in the online travel market and invest heavily in AI to become a leader in advanced AI-assisted travel booking services.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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