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Why Airbnb Tumbled Almost 9% This Week

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Jun 18, 2022 1:45PM EDT

What happened
Shares of Airbnb (NASDAQ: ABNB) fell 8.6% this week compared to where they closed out last Friday, according to data from S&P Global Market Intelligence, although there was no company-specific news to trigger the decline.

More likely it was the sell-off in the broader market that pushed the stock of the vacation rental company lower. The Dow Jones Industrial Average was down 4.7% for the week while the S&P 500 index fell nearly 6%.

Image source: Getty Images.

So what
There’s growing fear the economy is careening into a recession. Inflation of 8.6% is at a 42-year high; $5 or more for a gallon of gas nationally is an all-time record; the Federal Reserve raised interest rates by 75 basis points, the biggest increase in over two decades; and jobless claims exceeded pre-pandemic levels for the second straight week.

It suggests weakened consumer purchasing power will blow back on travel and tourism stocks like Airbnb as people will start cutting back on taking vacations. Not only is it expensive to drive anywhere, but the cost of flying is soaring too. Adobe Analytics says the cost of U.S. air travel in May is 47% higher than it was at the start of the year and domestic bookings were falling last month.

And it’s not likely to get better as airlines are suffering severe shortfalls in employees, leading to long delays and canceled flights. Just yesterday there were more than 21,500 flights delayed in the U.S., according to FlightAware, and over 3,300 flights were canceled. Higher fuel costs are also a burden as they represent 25% to 30% of an airline’s expenses.

Now what
Airbnb still looks like it’s on solid financial footing, and expects to report net profits for the first time this year. That could be jeopardized, however, if the economy continues to skid out of control.

Even so, Airbnb is still reaching new milestones. Nights and experiences booked, a key metric of growth for the vacation rental company, exceeded 100 million for the first time ever in the first quarter. Overall, travel has exceeded 2019 levels.

But there’s a bumpy road ahead for Airbnb and the rest of the economy, and that’s showing up in the travel site’s stock price. Even though the stock is down 40% year to date, Airbnb trades at a lofty 10 times revenue and 40 times its projected earnings.

There may be further deflation in its valuation in the future.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe Inc. and Airbnb, Inc. The Motley Fool recommends the following options: long January 2024 $420 calls on Adobe Inc. and short January 2024 $430 calls on Adobe Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Source : Nasdaq

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