Airbnb To Benefit From Changes To Travel Forced By Pandemic — Needham Initiates Coverage With $210 Price Target

Airbnb Inc ABNB is positioned to capture more travel share as its powerful network effect spreads through word of mouth advertising, repeat bookings and bookers turning into hosts amid the pandemic roiled-demand, according to Needham.

The Airbnb Analyst: Needham analyst Bernie Mcternan has initiated coverage for the home rental company with Buy rating and a 12-month price target of $210.

The Airbnb Thesis: Mcternan said in a note Tuesday that Airbnb is growing in popularity but the home rental company is still to gain a material share of travel bookings. In 2019, Airbnb customers booked about 2.5% of the company’s $1.5 trillion serviceable addressable market (SAM).

The analyst believes the company will not only be able to match that level this year but also penetrate an additional 100-150bps of its SAM per year.

As per Mcternan, Airbnb is set to reap the benefits as the United States appears primed for a return to travel this summer, based on a survey of about 550 travelers.

Customers have shifted to domestic, closer to home, outside the top cities and longer stays as the pandemic swept away demand elsewhere in the sector. This in turn has helped fuel demand for Airbnb type of bookings.

“While we do not know if these types of travel will gain share in the future, we do believe their resilience during the pandemic may have driven people to try ABNB who would not have otherwise,” Mcternan wrote.

The Needham analyst said Airbnb’s acquisition cost is not too high as most bookings are made directly or through unpaid channels, which could lead to outsized profit growth. Mcternan expects revenue to return to 2019 levels and for adj. EBITDA to turn positive for the first time in 2021 and improve significantly on its way to 30%+ margins.

See Also: How Airbnb's Valuation Compares To The Existing Hotel Industry

Why It Matters: Needham is bullish on Airbnb’s potential for a steeper profitability-trajectory post-pandemic relative to marketplace peers as it is able to acquire customers at a much lower cost. Mcternan believes the reopening of the economy and pent-up demand for travel will further boost bookings on Airbnb due to its differentiated offering. 

The San Francisco-based home rental company, like other travel peers, had a tough time last year as the pandemic-struck countries started introducing lockdowns to curb its spread. The company sought $2 billion in emergency funds from investors and also laid off a quarter of its workforce.

See Also: Airbnb Delivered A Loss In Its First Post-IPO Earnings Report

Price Action: Shares of the company, which have risen 19% so far this year, closed 0.36% higher at $174.88 on Monday. 

Photo: Courtesy of Airbnb Inc.