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May was a hectic month for Airbnb (NASDAQ:ABNB) observers. ABNB stock got off to a strong start in early May when the company posted a stronger first quarter result, with expectations for an even stronger second quarter. This led to an almost 8% rise in ABNB shares the next day. However, the good times did not last.
In the following weeks, shares lost a quarter of their value. Among the concerns raised was a CNBC report that Airbnb is exiting the Chinese domestic market. After its launch in China in 2016, news of the withdrawal of the world’s most populous country worried many investors.
Airbnb is still a bit risky, especially in the short term. The company continues to lose money, the war in Ukraine is hurting travel to Europe and “recovering” from the pandemic remains difficult thanks to the surge in Covid-19 variants. Pulling out of China is the least of Airbnb investors’ worries. However, in the long run, the picture looks better for this company. This makes ABNB’s current stock price (around $13 lower than its all-time closing low of $106.24) a potential buying opportunity for long-term growth investors.
Airbnb’s exit from China is not a big cause for concern
The title is the one that naturally raised the ears of investors. China is the largest country in the world in terms of population. With about 1.4 billion people, it has more than four times the population of the United States. In addition, Chinese citizens have enjoyed rapid income growth. According to the World Bank, China’s per capita income has grown by an average of 10% per year since 1978. This means many more people can afford to travel.
In comparison, US GDP growth has been much more modest – less than 5% per year since 2006, with two years of negative GDP growth during this period. It’s no wonder, then, that the idea of closing operations in China is causing some distress to ABNB investors.
However, all is not as it seems. For one thing, trips to China account for just 1% of Airbnb’s revenue. This activity is increasingly under pressure from Chinese competitors. And under the Chinese government’s zero Covid-19 policy, travel to China may see continued disruption. More importantly, Airbnb continues to book trips for Chinese outbound travelers. As the population gets richer, travel outside the country is ambitious and ABNB stock will always benefit from such international travel.
With travel resuming, Airbnb could be in a perfect position
What about the macro factors that have hammered the stock market this year? Won’t rising interest rates, inflation, exorbitant gas prices and the possibility of a recession affect travel?
This is certainly a risk to be aware of. However, consider this. What if these factors make travelers look for ways to save money rather than eliminate their trips? In this scenario, Airbnb might even do betterat the expense of hotels.
Should you buy ABNB shares?
With ABNB shares currently down to a price near its all-time low, is now the time to buy? It depends. In the short term, there is a lot going on that could derail portfolio binder Action rated “B”. There are big questions about economic conditions, war limiting travel to Europe and even Covid’s stubborn refusal to go away.
However, for long-term growth investors, the situation looks rosier for Airbnb. Verification with investment analysts monitored by CNN Money, the consensus note is “maintain”. However, with a 12-month median price target of $185 (representing a 56% upside), there is some confidence that ABNB stock will eventually rally. If you are willing to be patient, an ABNB investment is very likely to pay off in the long run.
As of the date of publication, neither Louis Navellier nor the member of the InvestorPlace research staff principally responsible for this article holds (directly or indirectly) any position in the securities mentioned in this article.