Should I invest in Airbnb stock after the current drop?

Airbnb, Inc. (NASDAQ: ABNB ) stock price fell from $129.38 to $117.59 in less than 24 hours to close the week at $118.75.

The risk of another decline is not over yet, especially if the US stock market enters a more pronounced correction phase.

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The current global economic situation indicates stagnation or decline

Airbnb operates an online marketplace for accommodation, primarily homestays for vacation rentals and tourism activities. Airbnb stock is down more than 5% this Friday, and it’s probably not the best time to invest in the company.

Current global economic conditions point to stagnation or contraction, while the deepening EU energy crisis and China’s zero-COVID policy continue to hamper Airbnb growth.

CEO Brian Chesky also recently said that Airbnb needs a pick-up in Europe to achieve further quarter-on-quarter acceleration.

Europe is facing a severe cost of living crisis and Airbnb’s exposure to Europe suggests that a large portion of their revenue will experience a period of weakness.

Airbnb doesn’t break down how much of its revenue comes from Europe, but in 2021 around 30% of its total revenue came from Europe, the Middle East and Africa (mostly from Europe).

Airbnb is also in a sector where the technology is getting cheaper and cheaper to develop, and many competitors may try to imitate the platform or lure a segment of Airbnb customers to their services.

As governments deal with the housing shortage, they may impose higher taxes on ABNB rentals, making the business less profitable for hosts in many parts of the world.

Airbnb listings are still relatively cheap, but in the event of higher taxes on ABNB rentals, Airbnb may increasingly face the problem of listing hosts who want to avoid paying a higher fee to the company.

Now let’s take a look at the basics. With a market cap of $79.96 billion, Airbnb is not undervalued, and compared to Hyatt Hotels, Airbnb is more expensive on a price-to-sales basis.

On a price-to-sales basis (market cap/sales), Airbnb shares trade at 10.8, which is more than double the price-to-sales multiple of Hyatt Hotels Corporation, which trades at a P/E of 4 ,27. traded.

It’s also important to note that Booking Holdings, which is growing at the same rate as Airbnb, trades at less than 6x this year’s revenue and less than 18x TTM EBITDA.

Airbnb trades at more than 50 times TTM EBITDA, book value per stock is less than $10 and the current risk/reward ratio is not attractive enough for “value” investors.

Technical Analysis

Airbnb’s share price fell more than 5% on Friday, and the risk of another drop is not over yet.

Data source: tradingview.com

The chart above shows that Airbnb’s share price has been in a strong downtrend since April 19, 2022. The price is currently trading below the 10-day moving average, indicating that the bottom is not yet in place.

If the price breaks below the $110 support, it would be a clear sell signal and the next target could be the strong $100 support.

On the other hand, if the price rises above the $140 resistance, it would be a signal to buy Airbnb shares, and the next target could be $150.

Summary

Airbnb’s share price remains under pressure, and if the US stock market enters a more significant correction phase, the share price could be at much lower levels. Airbnb trades at more than 50 times TTM EBITDA, book value per stock is less than $10 and the current risk/reward ratio is not attractive enough for “value” investors.

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