Airbnb runs an online marketplace for the renting of short-term living places. It is far from being the sole player in its chosen market. However, it is a notable one, so much so that it occupies a place of prominence in the public consciousness. As such, it is natural for investors to wonder about Airbnb stock, which has a rather mixed reputation. Fortunately, the reason for the Airbnb stock's rather mixed reputation isn't particularly mysterious. Simply put, the corporation isn't profitable. Furthermore, it has never been profitable over the course of its entire existence. However, different people interpret this in different ways, which is how they can have different opinions on whether it is a good idea to invest in Airbnb stock or not.
What Causes People to Have a Positive Opinion of Airbnb Stock?
For starters, it is common for such companies to take some time before becoming profitable. People aren't investing in them in the expectation of them making a profit right away. Instead, they are betting on their future prospects. Certainly, there are cases in which a lack of profitability is a serious warning sign. For instance, companies can sometimes be very popular but have no clear path to becoming profitable. One excellent example would be the subscription-based movie ticketing service MoviePass, which was doomed the moment that it started offering a movie ticket a day in exchange for a $10 monthly fee in the expectation that general consumers would use their subscriptions in the same way that they use their gym memberships. People who are willing to invest in Airbnb stock believe that this isn't an issue for the corporation. As far as they are concerned, it has a clear path to profitability. Furthermore, they believe that it will walk said path in a way that will make their investment profitable.
What Causes People to Have a Negative Opinion of Airbnb Stock?
In contrast, people who aren't willing to invest in Airbnb stock are less optimistic about the corporation's chances of becoming profitable. They tend to acknowledge that it has a clear path to profitability. However, having a path isn't the same as being able to walk it to a successful outcome. As mentioned earlier, Airbnb has plenty of competition. After all, there are other corporations interested in the same market. Furthermore, it is well-known that the hotel industry has been less than enthused by Airbnb's rise because while they aren't direct competitors, their services can serve as substitutes for one another. Besides this, there are other potential threats to Airbnb's profitability as well. To name an example, the corporation has come under serious public criticism because it has caused rental prices to increase by convincing property owners to take their properties off of the long-term rental market in preference for the higher earnings from the short-term rental market. Combined with other widespread sentiments, this means that regulation is a real concern. For that matter, it is worth mentioning that even if people believe that Airbnb will become profitable, it doesn't necessarily mean that they believe that it will become profitable enough fast enough to make investing in it worthwhile.
Is Airbnb Stock a Good Long-Term Investment?
There is no way for interested individuals to say for sure whether a particular investment will be pay off or not. If there was, investing would be a much less messy topic than it is. Still, it might be useful for interested individuals to look at why Airbnb is unprofitable rather than the simple fact that it is unprofitable. After all, a single financial statement cannot provide interested individuals with a perfect understanding of a business's performance. Never mind a single line on a single financial statement. As such, it is always a good idea for interested individuals to dive deeper so that they can get a more comprehensive understanding of the issue.
In 2020, most of Airbnb's net loss was caused by stock-based compensation. However, interested individuals shouldn't think too much about it going forward. This is because stock-based compensation is a one-time thing from the IPO that is recognized all-at-once rather than over time. However, even once it has been excluded from consideration, Airbnb still had a net loss because of the enormous resources that it has been pouring into its product development. In 2020, this was almost $2.8 billion, which was almost a tripling on a year-over-year basis. Theoretically, Airbnb could become profitable by reducing its expenditure on this. In practice, well, suffice to say that the situation is even more complicated than it seems.
Currently, Airbnb is the frontrunner in its chosen market. However, its chosen market is still in the process of emerging, meaning that things are still very much in flux. Product development is the way that Airbnb can maintain its lead, so cutting into it could have very detrimental consequences for its revenue-earning operations. At the same time, product development is also a way by which the corporation can claim a bigger share of its chosen market, thus enabling it to get closer and closer to profitability. In other words, it isn't clear whether Airbnb will do well or not, which is perhaps unsurprising consider Airbnb stock's rather mixed reputation.
Ultimately, interested individuals should consider their own motives for investing before examining whether Airbnb stock makes sense for them. Long-term investing is a very nebulous term. As a result, interested individuals should try to figure out exactly what they want from their long-term investments, which in turn, should help them choose the right stocks. For example, if they just want dividends, Airbnb stock is definitely not the right choice for that. In contrast, if they are willing to take a chance in expectation of future appreciation, well, Airbnb stock might be the right option for them. Of course, interested individuals should continue paying close attention to the corporation's performance in various respects, which should provide them with further information so that they can make their eventual choice on firmer metaphorical footing.
Written by Allen Lee
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