Despite being around for lower than 20 years, Airbnb (NASDAQ: ABNB) has sure experienced monster success throughout its history. The choice accommodations platform has truly upended the hospitality industry. And its scale is unmatched, with $21 billion in gross booking value just within the last quarter, in addition to 5 million hosts on the location.
With the growth tech stock trading 46% below its all-time high, investors might need to buy the dip with Airbnb. Before doing so, it’s value taking the time to know what is perhaps the corporate’s biggest risk.
Ongoing headaches
Airbnb has found tremendous success, but to be clear, it still operates in a competitive sector of the economy. There’s competition from global hotel chains, boutique properties, and other booking platforms.
Nevertheless, I feel its biggest headache has been the regulatory landscape. There are various rules that Airbnb must follow on a neighborhood, state, and federal level. It will probably be difficult to navigate all of this. The appearance of the web and these platform business models is making it difficult for lawmakers to maintain up. So, there has definitely been some uncertainty for Airbnb.
The business has an enormous bullseye on its back due to how it could possibly have a profound impact on the markets that it operates in, which could cause local residents to thrust back. For instance, the next variety of listed properties could lead to the constant influx of travelers, making a neighborhood feel more like a tourist destination than an actual community. There is also safety concerns.
Potential impacts to the associated fee of living cannot be ignored, either. Buyers might be drawn to a market resulting from attractive demographics, resulting in home values going up. Furthermore, these properties grow to be a financial asset versus a spot for the owner to truly live in. This might exacerbate the issue of housing affordability within the U.S.
For what it’s value, there are already regulations in place in 80% of the corporate’s top 200 markets, which does reduce the uncertainty somewhat. Nevertheless, that does not imply Airbnb is out of the woods. A few yr ago, Latest York City banned rentals of lower than 30 days. Some other opposed legislative actions taken in key markets could negatively impact the business.
Founder and CEO Brian Chesky and his team don’t agree with the move. They are saying that hosts pay their taxes and convey in tourism and spending that may enhance an economy. And a legitimate argument may be made that if Airbnb were charged higher fees or fines were imposed, the experience for each hosts and guests might be diminished.
Of the greater than 100,000 cities and towns Airbnb has lively listings in, not a single one accounts for greater than 2% of the corporate’s revenue. That geographic diversity helps to mitigate regulatory risk at the least on the local level.
Must you buy Airbnb stock?
Investors seeking to buy Airbnb stock need to know that regulatory actions pose a threat to the corporate’s trajectory. I still imagine the shares are a worthy investment candidate, though.
Airbnb’s growth remains to be healthy, regardless that it’s slowing down. Sales increased 11% from under $2.5 billion within the second quarter last yr to over $2.7 billion in Q2 this yr.
Airbnb generates robust profitability. Free money flow totaled $4.3 billion within the last 12 months, which represented 41% of overall business revenue.
And the corporate’s two-sided marketplace creates network effects. The larger the platform becomes, with more hosts and guests, the more priceless it becomes to everyone.
All of those positive attributes should mean the stock deserves a more in-depth look.
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Neil Patel and his clients haven’t any position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Airbnb. The Motley Idiot has a disclosure policy.
Is This 1 Thing the Biggest Risk for Airbnb Stock? was originally published by The Motley Idiot