Airbnb (ABNB 1.75%) handily beat Wall Street expectations when it reported its fourth-quarter 2024 financial results on Feb. 13. Revenue of $2.5 billion and earnings per share of $0.73 for the three-month period were both well ahead of consensus analyst estimates.
This explains why shares surged 15% immediately following the news. However, they still trade 32% below their all-time high from about three years ago. Add this to Airbnb’s fundamental momentum, and the business might be on your radar.
Here are three reasons investors might consider buying this growth stock. But there’s also one must-know reason to steer clear of Airbnb for now.
Strong profitability
Airbnb’s financial soundness is one reason to appreciate this company. This is never more evident than when you consider its income statement. The business raked in $2.6 billion in operating income in 2024, resulting in a fantastic margin of 23%.
It’s encouraging to see this figure increase. The operating margin was just 9% in 2021. Airbnb’s business model is scaling up in a profitable manner as it continues to better leverage its largely fixed-expense structure.
The consensus analyst view is for operating income to rise at a 15.6% annualized clip over the next three years. This would be a faster rate of growth than revenue.
Network effects
Airbnb has built up an economic moat thanks to the presence of a network effect. By having more than 5 million hosts with over 8 million active listings, the platform is immensely valuable to travelers. As each group grows in size, Airbnb’s value proposition increases.
It’s also worth mentioning the nature of these network effects. They’re global, unlike Uber Technologies, for example, which has localized network effects generally specific to a certain city.
Airbnb benefits from travel demand that isn’t restricted by geography. For example, someone in Ohio looking to spend a week on the West Coast can benefit hosts in Los Angeles or Seattle. It works internationally, too, like if a French citizen wants to visit Japan. This allows for a denser network with a greater possibility of connections being made.
Growth potential
Airbnb’s growth in recent years has been spectacular. In 2024, it reported $81.8 billion in gross booking value, which was 115% higher than five years before. However, the business still has expansionary opportunities.
CFO Ellie Mertz laid out a clear plan of attack on the Q4 2024 earnings call. “Our strategy is designed to drive long-term growth and deliver market share gains through three levers: one, perfecting our core service; two, accelerating growth in global markets; and three, launching and scaling new offerings,” she said.
Building on the success of the core rental service is key. Growth internationally, especially in Latin America and the Asia-Pacific region, is robust. But executives plan to invest $200 million to $250 million to launch new business lines.
“We want the Airbnb app kind of similar to Amazon, to be one place to go for all of your traveling and living needs,” Co-founder and CEO Brian Chesky said. In other words, Airbnb is aiming to create adjacencies that make it more valuable to its user base, with the hope of generating sizable incremental revenue in the years ahead.
Don’t pay too much
Airbnb’s profitability, network effect, and growth strategy are all compelling reasons to buy. These positive attributes should at least put the company on your watch list.
But the current valuation is one reason investors should steer clear. The stock trades at a forward price-to-earnings ratio of 34.5. It has rarely been more expensive in the past couple of years. I view this as an expensive valuation. So, investors should wait until there’s a better entry point.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Amazon, and Uber Technologies. The Motley Fool has a disclosure policy.
