Airbnb: Significant Challenges Mean Share Price Appreciation Unlikely
Geoff Considine, Ph.D | Dec 08, 2021 08:50
Shares in online accommodation marketplace, Airbnb (NASDAQ:ABNB) fell on concerns about the potential impacts of the Omicron variant of COVID-19 on global travel.
But, coronavirus aside, the stock has been having a rough time for a while. Although there is general agreement that the company has a compelling value proposition which it has executed well, regulatory risks could significantly impact the business.
Cities rely on lodging taxes from hotels and motels and are concerned about protecting this source of income. In addition, a growing constituency is warning that ABNB short-term rentals aimed at vacationers and business travelers affinity for the ‘embedded lottery ticket’ of positive skewness and tend to bid up the prices of stocks with this characteristic.
This market-implied outlook for ABNB is bearish because there is a substantial tilt in the probabilities towards negative price returns. There is also a small but robust probability of outsized positive returns, and this is what attracts many investors.
The 13.5-month outlook to January of 2023 is consistent with the 6.4-month outlook, albeit even more bearish. The outlook has substantial positive skewness and the peak in probability occurs at a price return of -31% over this period. The annualized volatility calculated from this distribution is 51%.
Source: Author’s calculations using options quotes from E-Trade. The negative return side of the distribution has been rotated about the vertical axis.
The market-implied outlook through 2022 is bearish, with high volatility. These results are qualitatively very similar to the market-implied outlooks that I calculated in March.
Summary/h2
Innovative companies that disrupt and transform their industries are rare and Airbnb is such a company. This does not, however, make the shares a good investment.
It is very hard to have confidence in forward-looking analysis for ABNB. The consensus rating from Wall Street is bullish, but there is not a strong majority of analysts who are bullish. The consensus 12-month price target is about 9.25% above the current share price.
Given the high risk (with expected annualized volatility of 50%), this level of expected return is not compelling.
The market-implied outlooks to June of 2022 and to January of 2023 are bearish, with probabilities that substantially favor losses. The stars may align for ABNB over the next year, but the odds are not good. In balancing the bullish consensus rating from Wall Street with the bearish market-implied outlook through 2022, I am changing my rating on ABNB to neutral.
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