Despite not being around for twenty years yet, Airbnb (NASDAQ: ABNB) has certainly had some monster successes in its history. The alternative accommodation platform has truly disrupted the hospitality industry. And its scale is unparalleled, with $21 billion in gross booking value in the last quarter alone, and 5 million hosts on the site.
With the growth tech stocks is trading 46% below its all-time high, investors may want to buy the dip with Airbnb. Before you do, it’s worth taking the time to understand what the company’s biggest risk could be.
Persistent headache
Airbnb has had tremendous success, but to be clear, it still operates in a competitive sector of the economy. There is competition from global hotel chains, boutique hotels and other booking platforms.
I think the biggest headache, though, has been the regulatory landscape. There are a lot of different regulations that Airbnb has to follow at the local, state, and federal level. It can be challenging to navigate through that. The advent of the internet and these platform business models make it hard for regulators to keep up. So there’s definitely been some uncertainty for Airbnb.
The company has a bull’s-eye on its back because of the large impact it can have on the markets it operates in, which can cause local residents to push back. For example, a higher number of listings can lead to a constant influx of travelers, making a neighborhood feel more like a tourist destination than a real community. There can also be safety concerns.
Potential implications for the cost of living cannot be ignored either. Buyers may be attracted to a market because of attractive demographics, leading to rising home prices. Additionally, these properties become a financial asset rather than a place for the owner to actually live. This could exacerbate the housing affordability problem in the U.S.
For what it’s worth, there are already regulations in place in 80% of the company’s top 200 markets, which reduces some of the uncertainty. That doesn’t mean Airbnb is out of the woods, though. About a year ago, New York City banned rentals of less than 30 days. All other unfavorable legislative measures taken could have a negative impact on the company in important markets.
Founder and CEO Brian Chesky and his team disagree with the move. They say hosts pay their taxes and bring in tourism and spending that can bolster an economy. And there’s a valid argument to be made that if Airbnb were to pay higher fees or face fines, the experience could be diminished for both hosts and guests.
Of the more than 100,000 cities and towns where Airbnb has active listings, none represents more than 2% of the company’s revenue. That geographic diversity helps mitigate regulatory risk, at least at the local level.
Should You Buy Airbnb Stock?
Investors looking to buy Airbnb stock should understand that regulatory action poses a threat to the company’s stock price. However, I still believe the stock is a worthy investment candidate.
Airbnb’s growth is still healthy, even if it’s slowing. Revenue rose 11% from less than $2.5 billion in the second quarter of last year to more than $2.7 billion in Q2 this year.
Airbnb generates robust profitability. Free cash flow totaled $4.3 billion in the past 12 months, representing 41% of total company revenue.
And the company’s two-sided marketplace creates network effectsThe bigger the platform gets, with more hosts and guests, the more valuable it becomes for everyone.
All these positive qualities make the stock worth a closer look.
Should You Invest $1,000 in Airbnb Now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb. The Motley Fool has a disclosure policy.
Is This 1 Thing the Biggest Risk for Airbnb Stock? was originally published by The Motley Fool
