Andrew Willis: An economy that’s reopening right before vacation season is ripe for speculation. But investors keen to cash in on a surge in demand should keep in mind that there’s often a corresponding increase in suppliers.
While investors have been buying up travel stocks recently, they’ve also been fuelling increased competition in the accommodation – and alternative accommodation space currently led by Airbnb.
There are high expectations out there for the company, but as senior equity analyst Dan Wasiolek puts it, ‘Airbnb’s valuation is tough to accommodate’. He does share the view that this pioneering company will likely keep the top spot in its segment but sees investors as overestimating the possibility that growth returns to pre-pandemic levels over the next 10 years, even with new ‘work [slash] vacation’ trends.
There’s also the possibility that investors are underestimating ongoing regulatory and competitive threats. We think the company’s going to need to make more investments to maintain its ‘network advantage’ that it's built through its app. And any attempt to enter the traditional hotel booking space with necessary marketing investments could eat into its profits - which are in the sights of speculators.
We think Airbnb will continue to grow, but at fifty times enterprise value versus fifteen for hotel peers, investors back to travel might want to check in somewhere less expensive…
For Morningstar, I’m Andrew Willis.
Editor's Note: All images are courtesy of Unsplash.com and AP Images.
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