Does Airbnb’s share price have a 21% upside?

The post-pandemic recovery is on for Airbnb’s [ABNB] share price. The stock surged 12% on Friday 5 November to break through the $200 level as  third quarter results gave shareholders something to smile about.  In the results, the online travel market posted record revenue and net profits compared to the same stretch last year. 

Helping the cause was an uplift in travel after the pandemic battered most of the industry and a bevvy of analyst upgrades. Since those stellar results, Airbnb’s share price gained 2.5% last week to close Friday 12 November at $206.54.

With the stock now trading at an all-time high, investors will be wondering whether there is much upside left. Analysts seem to think so, with several hiking their price targets after the strong third quarter numbers and the prospect of the travel sector continuing to recover.

Earnings see Airbnb’s share price soar

An easing of COVID restrictions, people fed up with being stuck indoors and the vaccine rollout have led to a surge in travel demand. Airbnb said that 79.7m nights and experiences had been booked in the third quarter, up 29% from the same period last year. And while that was a slight drop from the previous quarter, it shows that demand is back.

Revenue in the quarter came in at $2.24bn, up 67% year-on-year, with net income at $834m, up 280% - both the highest ever for Airbnb.

The obvious concern is that the huge jumps in growth might not be sustained in subsequent quarters. Either because results won’t be comparable to when COVID-19 restrictions were in full force or the pent up aperitive for holidays has dissipated.

In the third quarter, Airbnb said that bookings were up 10% compared to the same period in 2019 - that is before the pandemic struck. For the fourth quarter, Airbnb expects revenue to come in at between $1.39bn and $1.48bn - if hit that would take full year revenues to above where they were in 2019, according to The Motley Fool’s Edward Sheldon.

“Looking to 2022, vaccination progress and the recovery of international travel in Q4 2021 will be key themes for growth heading into the new year,” Airbnb said in a statement.

Analysts up price targets on Airbnb’s share price

As the economy opens up again, Airbnb looks primed to continue growing.  Susquehanna raised the share price target to $235, and named Airbnb a ‘must-own stock for the recovery’. JPMorgan upped its target to $195, and although that’ s below Friday’s close it still signifies confidence in Airbnb’s business model.

Other upgrades came as Piper Sandler upped its price target from $175 to $215, Wells Fargo from $210 to $225 and Loop Capital from $205 to $250 - one of the more bullish on Wall Street. All follow a similar line of argument: that as the US and other countries remove travel restrictions, then Airbnb should benefit.

Writing on The Motley Fool, Edward Sheldon outlines a couple of risks when it comes to Airbnb. The first comes down to valuation with the stock carrying both a high market cap and forward price to earnings ratio. Should the company deliver a bad quarter, then the share price could take a big hit.

The second is emerging regulations that could affect hosts. For example, in Australia the New South Wales government is looking at regulations that will limit the number of days a host can rent their property. Other authorities are considering similar regulations.

Still, as it stands hitting Loop Capital’s $235 price target would see a 21% upside on Friday’s close - a solid upside should demand for Airbnb’s product continue.