Airbnb – The recovery trade

Airbnb signals the beginning of the recovery trade.

• Airbnb reported reasonable maiden results but its bookings are starting edge up in another signal that the travel, hospitality and entertainment sectors are about to enjoy a healthy recovery as thoughts turn firmly to re-opening.
• My personal suspicion is that when the hundreds of millions of prisoners across the world finally emerge from their houses, the first thing they are going to want to do is to go on holiday and get a change of scenery.
• Q4 2020 revenues / EPS were $859.3m / LOSS$11.24 significantly ahead of revenue expectations of $745.4m but miles behind the EPS estimate of LOSS$8.81.
• Q4 2020 Revenues have recovered to be down just 22% YoY greatly outperforming other parts of the travel sector such as Expedia and Booking.com who saw revenues decline around 65% YoY in the same period.
• This is because Airbnb has benefitted from city dwellers taking longer-term rentals in rural areas rather than sit out the lockdown in cramped cities.
• Bookings for Q1 2021 are unsurprisingly higher than one year ago but lower than the same period in 2019.
• The company was very cautious on giving any concrete guidance but it is clear that it is expecting a strong recovery as people become immune to the SARS-Cov2 virus and can start travelling again.
• Airbnb’s data suggests a significant bounce in travel but that this will be mostly taken by car and will be domestic in nature.
• This makes sense because Americans are more accustomed to driving long distances within their borders and could well do this in greater numbers than before.
• While this could well be true for the USA (where Airbnb did its survey), I think that in Europe, a very different picture is likely to emerge.
• People who have been stuck in Britain, France or Germany for over a year are going to want to go somewhere else and so I suspect that they are going to be willing to get on a plane.
• Hence, I suspect that the European aviation industry may see a stronger recovery than its counterpart across the pond.
• Booking Holdings, Expedia and Airbnb have already recovered and are at all-time highs with what I consider to be unattractive valuations.
• Hence, I would be looking for the European airlines and the cruise lines in particular which are now starting to show some signs of life.
• They are also proving to be surprisingly resilient to the market wobbles that have driven by rising interest rates that can be seen in the bond market.
• They have already moved significantly off their lows but there is still a long way to go if travel picks up as I expect it to in the summer months of 2021.
• I am inclined to pick up a basket of these names for both the recovery and their apparently defensive nature given their still low valuation relative to the rest of the market.