1 Under-$100 Billion Growth Stock To Join Trillion Dollar Club?

Airbnb (NASDAQ: ABNB) isn’t even two decades old but it has made more than a splash in disrupting the travel and hospitality industry. Famously, one tag line announced that the largest taxi firm in the world owns no taxis (Uber) and the largest accommodation in the firm (Airbnb) owns no real estate.

With a market cap still under $100 billion yet pumping out an astonishing $3.8 billion in free cash flow alone last year, Airbnb has the potential to soar over the coming years, but will it reach the trillion dollar club that is home to Microsoft, Apple, Amazon and NVIDIA?

Key Points

• Airbnb’s asset-light model has driven significant financial success, with nearly $10 billion in revenue and $4.7 billion in net income last year, serving 150 million users globally.
• Beyond short-term rentals, Airbnb now offers long-term stays and local experiences, with long-term bookings accounting for 20% of nights, fueled by remote work trends.
• Future growth drivers include international expansion, product diversification, and tech advancements, suggesting strong long-term potential.

Highly Disruptive Business Model

The idea was simple enough when it launched: connect travelers with hosts offering unique accommodations. Executing on the idea has proven to be a stroke of genius by the founders who figured out how to operate an asset-light business that is scalable around the globe.

As of the end of last year, Airbnb had over 1.4 million active listings across more than 220 countries and regions and the platform hosts approximately 150 million users, with a growing number of repeat customers.

The range of offerings from single rooms to entire homes, and even unique experiences like treehouses and castles attracts a broad demographic of travelers.

That’s one of the reasons why revenues last year nearly hit $10 billion, and gross bookings were an astonishing $60 billion. The real genius of the asset-light model is that Airbnb is highly efficient in dropping top line revenues to the bottom line. A full $4.7 billion dropped to net income last year.

Addressable Market Is Growing

In its original format, Airbnb would have struggled to 10x from here and reach a trillion dollar market capitalization. But it has expanded its addressable market and entered new segments, including long-term stays and experiences.

The shift towards remote work has fueled demand for longer stays with bookings of 28 days or more growing significantly. Last year, long-term stays beyond 28 days accounted for 20% of nights booked on Airbnb, up from 14% in 2022.

This trend is likely to continue as remote and hybrid work arrangements become more common. In addition, what is notably moving the needle is Airbnb Experiences, which offers activities hosted by locals.

Embracing AI

Airbnb’s brand is synonymous with unique travel experiences and that will only be further enhanced as AI-driven search and personalized recommendations are further embraced. It’s clear that customers are happy with Airbnb’s customer satisfaction score (Net Promoter Score) consistently exceeding 70.

So with happy customers, strong profitability and a growing addressable market can Airbnb hit the trillion dollar market cap level?

Several factors could drive Airbnb’s growth in the coming years:

1. International Expansion: Continued growth in emerging markets, where travel demand is rising.
2. Product Diversification: Expanding into new categories such as luxury stays and corporate travel.
3. Technological Advancements: Leveraging AI and machine learning to improve search algorithms and customer experience.

For now, the numbers don’t support a 10x increase akin to NVIDIA’s anytime soon but over the long-term, expect revenue growth to increase, the addressable market to expand, and accordingly significant upside potential for long-term investors.