Market Commentary: 1 Unlikely AI Play You Should Not Ignore

When you think of AI plays, Airbnb is not the first company that springs to mind. Yet, Brian Chesky’s firm has made a splash by snapping up GamePlanner.ai for $200 million.

Although it’s not apparent at first glance how artificial intelligence plays into the Airbnb business model, a deeper dive reveals the genius behind the acquisition.

Chesky has made it clear that Airbnb plans to be a travel concierge, which you can interpret as helping travelers to better customize their experiences, ranging from lodging to activities and adventures when away.

To fully grasp the innovation of the strategy, consider the current alternative where a traveler checks into a hotel and sleeps in a room just like any other in the hotel in a standard location. Via Airbnb, that same traveler can be guided to a destination lodging they prefer, for example a rustic rural barn where recommendations for local adventures are delivered to them seamlessly online.

If you can always be served a personalized experience for getaways, why choose any other option? That’s the bet Airbnb is making with its AI acquisition. The strategy be a winner but is the stock?

Key Points

• Airbnb has shown strong growth, with revenues increasing from $859 million in Q4 2020 to $3.3 billion in Q3 2023, alongside a significant improvement in earnings per share and a solid balance sheet.
• The company’s stock has been volatile and analysts price targets vary widely but could be underestimating the future.
• Airbnb’s increasing profitability and growth trajectory could make a buy now look obvious five years from now.

Airbnb Is Crushing Growth

Airbnb has been on a wild run over the past three years from highs of $212 per share to lows of $85 per share and now sitting close to $130 per share. It’s hard to figure out where fair value sits, so we turned our attention to a 5-year DCF analysis that puts a $158 price target on the firm.

The general Wall Street consensus is closer to $135 per share, suggested more muted upside potential for new buyers at this time. Even among analysts there is wide disagreement, though, with share prices targets ranging from under $100 per share to close to $200 per share.

What’s not in doubt is how well the company has done growing revenues over the past three years from $859 million in Q4 2020 to $3.3 billion in Q3 2023. Better still, earnings per share over that timeline have soared from a disappointing loss of $11.25 per share in Q4 2020 to plus $6.63 per share in Q3 2023.

Over that time span a fortress balance sheet has been built too, featuring $10.8 billion in liquid reserves while debt sits just shy of $2 billion. It’s clear on just about any measure that Airbnb is a really managed company on a clear and rapid growth trajectory.

Is Airbnb Stock a Buy?

Airbnb is a mixed bag when it comes to buy or sell signals. The price-to-earnings ratio in the mid-teens suggests it is fairly valued while the price-to-sales ratio over 8x is a warning flag that the stock is too rich.

With earnings per share consistently on the rise and more profitability forecast for the coming year, it appears that analysts may be undervaluing the future profitability of the firm.

If a discounted cash flow forecast analysis is correct and analysts are indeed being overly pessimistic at this time, Airbnb could be a hidden gem that will wow investors in the coming years, and look like an obvious buy in hindsight.