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A Silicon Valley billionaire from Dubai

Airbnb (ABNB) is one of the great investment regrets of my life since I turned down a chance to invest in it a decade ago at a valuation of a mere $1 billion, even though a lady far smarter than me invested $10 million in it and is now a Silicon Valley billionaire from Dubai.

ABNB has been a disaster in 2021 since it peaked at 219.94 in February and is now down 36% at 140 as I write. It is hard to see why any of my readers would be interested in my opinion on a pre-IPO tech I got so spectacularly wrong in the first place. But, I really believe that the risk/reward calculus on ABNB is now in favour of the bulls. Why?

One, as the airline CEO calls confirmed, leisure travel is on a roll in North America. Airline flight rate and passenger traffic are sharply higher in the past three months. This is bullish for ABNB as concerns about delta variant are now priced in. Unless an exogenous virus variable emerges.

Two, Europe is 45% of ABNB’s nightly bookings and it is only a matter of time before Europe becomes a magnet for the world’s Pfizer vaccinated travellers with money to spend. This is positive for ABNB.

Three, ABNB should easily meet its whisper number for Q2 revenues of $1.2 billion. Four, ABNB’s valuation multiple has fallen from a nosebleed metric of 23X revenues to 12X revenues now. I concede that this is not cheap but a global brand with this scale and potential, 30% EPS growth rate will not come much cheaper on the stock exchange. If Lord Acton defined politics as the art of the possible, I define growth stock investing as the art of the probable.

Five, ABNB dominates the $150 billion alt accommodation market whose growth will surpass brick and mortar hotels/motels and easily rest 30% of the global hospitality market from traditional lodgings by 2025, up a mere 14% now.

Six, CEO Brian Chesky has confirmed that ABNB performance has exceeded expectations in its sponsored listings and experiences segments. There is no doubt in my mind that we are on the precipice of an analyst earnings upgrade cycle in the next 12 months that will boost the stock higher.

Seven, ABNB has exceeded its 2019 bookings level despite a tough global operating environment in many countries still suffering from the virus’s rampage. This is a far more resilient business model than hotels, casinos or online travel agencies.

I believe ABNB can well trade as high as 180 a share by the end of the year as long as the world does not suffer any new black swan virus shocks.

Matein Khalid is Chief Investment Officer at Asas Capital

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