Should Airbnb Stock Be Evicted From Your Portfolio?

Airbnb (NASDAQ: ABNB) is one of those classic “disruptor” stocks that first rose to prominence in the late 2000s. 

Like Uber (NYSE: UBER), it leveraged the personal resources of its “workers” (namely their cars and houses) to create an entirely new service economy centered around sharing.

The model seemed like a slam dunk at first, and splashy IPOs followed, with Airbnb going public in 2020. 

That might seem like bad timing, but it worked out for Airbnb. Its stock shares soared from $139 in December 2020 to a high of $212 in February 2021 — posting a rapid 52% rise as the world slowly kicked back into motion. 

But that was the peak. Airbnb stock fell as low as $85 per share before rebounding to its current price of $135 — just a shade lower than where it began. 

That’s likely to be its ceiling, too. Opinions vary, of course, but the average price target among the dozen analysts I looked at came in at $153. That represents a 13% premium to the stock’s current value. 

That’s pretty paltry — especially when you consider bearish estimates for Airbnb stock go as low as $129. That’s closer to where I am considering the limited value the company offers and the considerable headwinds it’s facing. 

If you want to know why, we can take a quick spin through Airbnb’s earnings and some recent developments that could have a decidedly negative impact. 

Airbnb Earnings

Airbnb is set to report its second-quarter earnings tomorrow (August 6). And they’re expected to be pretty bad. 

Wall Street firms forecast revenue of roughly $2.75 billion, which would be a 10% improvement over last year. 

However, in its first-quarter report Airbnb projected revenue of between $2.68 billion and $2.74 billion. Part of the reasoning behind that was the leap year, which brought the Easter holiday into the final week of March instead of the first week of April. That shifted holiday travel revenue from the second quarter to the first.

Of course, it’s possible that Airbnb was low-balling it, especially since travel has been extremely robust this summer. An event like the Paris Olympics may have goosed things even further, as Airbnb is an official sponsor providing accommodations for both fans and athletes. 

I wouldn’t count on it, though. Especially since the consensus forecasts a 6% drop in earnings per share — despite the optimism surrounding the company’s revenue. 

There are a few reasons for this — and obviously none of them are good. 

For example, Airbnb has long touted its ability to generate business without much advertising, but that’s changed these past few years and quarters. 

Airbnb’s advertising spend climbed from $176 million in 2020 to $953 million last year. And in the first quarter of 2024, the company’s marketing spend hit $514 million, up from $450 million in the same period last year.

So the cost of growth, which has stalled in the single digits, appears to be rising. That doesn’t bode well in the short term, but there are even bigger issues looming on the horizon — government regulation chief among them.

Airbnb Runs Afoul of the Locals

You see, one of the biggest complaints about Airbnb’s model is that it’s contributing to our nation’s housing shortage and historically high home prices. 

Airbnb entrepreneurs have been scarfing up houses to rent out, hoarding properties that would otherwise be sold, and contributing to a massive cost-of-living increase for residents — especially city dwellers living in major tourist destinations. 

New York City is a prime example. 

Its home vacancy rate is the lowest in five decades (1.4%). And an investigation by the city in 2018 found that for every 1% of New York homes listed on Airbnb, rent in the corresponding neighborhood went up by 1.6%. 

As a result, Airbnb alone was responsible for roughly 9% of the citywide increase in rental rates from 2009–2016.

In response New York passed a regulation known as Local Law 18, which places restrictions on short-term home rentals. 

Among other things, the law says homes can only be rented out for a period of less than 30 days, to a maximum of two guests at a time, only with the homeowner present. 

The rental also has to be in a sanctioned building, with hosts applying for approval from the Office of Special Enforcement under the Mayor’s Office of Criminal Justice.

New York opened its application portal in March last year. In the time since, it’s received roughly 6,400 applications for short-term rentals. However, fewer than 2,300 have been approved, roughly 1,750 have been denied, and another 2,300 applicants have been asked for more information. 

Airbnb sued the city to prevent LL18 from going into effect, but lost in court last August. And that’s just the first of many battles Airbnb will be fighting (and likely losing) in the years to come.

Remember, the company pointed to Paris as a potential short-term catalyst for earnings, and third-party data suggests short-term rentals in the City of Light are up 44% year over year.

But in reality, that’s just a blip, as the number of Airbnb listings in Paris has soared from 4,000 in 2012 to more than 60,000 today.

That’s not great for locals since Paris is facing an affordability crisis like New York and many others. So it, too, has taken measures to push back. 

The city has restricted the number of days a house can be rented, capped the amount of income they’re allowed to generate, issued noise restrictions, employed higher taxes, and banned small lock boxes that hold rental keys 

Paris Mayor Anne Hidalgo even complained to the IOC regarding Airbnb’s status as a sponsor of the Paris games. And Ian Brossat, the deputy mayor in charge of housing, called it “totally irresponsible given the disastrous consequences Airbnb has had on our towns and cities.”

“We are dealing with a company that doesn’t have the means to pay its taxes in France but can find the means to sign a deal with the IOC,” Brossat argued.

Again, this fight is playing out in some of the most highly trafficked metropolises on the planet. And it’s only getting more intense.

Protesters in Barcelona — which is also attempting to phase out short-term rentals and return 10,000 apartments to the residential market by 2028 — recently caused a stir by marching through major travel destinations chanting, “Tourists go home!” 

So this is undoubtedly the biggest headwind facing Airbnb going forward — topping even privacy concerns, like creepy hidden cameras. 

The bottom line…

Airbnb is likely to disappoint with its second-quarter earnings report. But even if it surprises to the upside, its long-term growth is going to be severely capped by local resistance in major cities and the high costs — both in money and PR — of overcoming it.

Fight on,

Jason Simpkins

Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more…

In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor’s page.

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