The coronavirus pandemic has wreaked havoc on people’s lives and livelihoods. However, thanks to human ingenuity, several effective vaccines against COVID-19 have been developed and are being administered worldwide.
In areas where a high percentage of the population is vaccinated, the number of people getting sick because of COVID-19 has decreased to a manageable level. Subsequently, vaccinations have allowed some countries like the U.S. to start removing mobility restrictions meant to slow the spread of the virus. As a result, folks are responding by going out and experiencing the places and things they were unable to during lockdowns.
After more than a year of people being cooped up at home, the pent-up demand for travel is one reason why Airbnb (NASDAQ:ABNB) is my top reopening stock to buy right now.
The coiled spring of pent-up demand for travel is starting to unwind. In its most recent quarter, Airbnb reported revenue that bounced back above pre-pandemic levels. That’s despite many travel restrictions remaining in place for much of the world. The rebound is led by travelers in the U.S., a region that has just gone through a rapid reopening of the economy.
Further, the rebound is just getting started. Unearned fees, which are essentially reservations for stays not yet experienced, were $946 million in the first quarter for Airbnb, compared to $658 in the same quarter a year ago.
Better business model
In the short run, the pandemic had devastatingly negative effects on Airbnb. However, several changes caused by the pandemic will be positive for the company. For instance, remote working arrangements allow people the convenience to travel more often. If you’re working from home during the week, you can take a trip nearby and work remotely at an Airbnb rental. Remote work is saving Airbnb on the expense side as well. It decided it no longer needed expensive office space in San Francisco and exited an office lease.
Competitively, Airbnb has an edge against hotels and resorts. The convenience and selection it offers will be difficult, if not impossible, for hotels to match. For instance, in response to an increase in demand for stays in non-urban locations, Airbnb was able to increase listings on its site by 30% in those locations from the same time in 2019.
The overall size of the hotel and resort industry was $1.21 trillion in 2019. With $10.3 billion in gross bookings on Airbnb in the most recent quarter, the company is only beginning to scratch the surface of its total addressable market.
What’s more, its asset-light business model will allow Airbnb to grow into that market efficiently. For instance, consider a hotel in Los Angeles where wages are among the highest in the world. It would have to hire local staff to maintain the location. In contrast, Airbnb can continue to hire customer service agents in lower-cost parts of the world to serve customers regardless of where they choose to stay. As a middleman bringing hosts and guests together, this business model requires minimal staffing costs compared to hotels.
Airbnb is in a position to capture large swaths of reopening demand as economies ease travel restrictions worldwide. Moreover, Airbnb has excellent long-run prospects to gain a larger share of the massive travel industry. For those reasons, Airbnb is my top reopening stock to buy right now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.