Shares of Airbnb (NASDAQ: ABNB) collapsed 46.5% through the first half of 2022, according to data from S&P Global Market Intelligence. The stock is sporting an even worse 58% decline from its peak in late 2021. It’s been a tough year for high-growth but richly valued stocks like Airbnb. By comparison, the S&P 500 was down 21% from its all-time highs, and the Nasdaq Composite was down 31%.
Airbnb’s performance may seem confounding, especially since consumer spending has rapidly shifted toward travel and experiences in 2022 as the economy has reopened. Additionally, while many of its peers are recovering from the pandemic, Airbnb is in high-growth mode.
The primary reason for the stock’s decline, though, is that it was too expensive after its late 2020 debut as a publicly traded company. With the U.S. Federal Reserve hiking interest rates in an attempt to beat down inflation, high-growth stocks have been in retreat. Higher interest rates lower the present value of risk assets like stocks.
Besides the Fed, investors have begun worrying about a deteriorating outlook for the economy. Reports indicate booming travel is starting to slow because of high energy prices, and consumers are taking pause before taking that big vacation. The housing market is also in turmoil, which could also spill over and impact the millions of hosts on Airbnb’s site.
It’s been a rough first half of 2022, the worst first-half year in over 50 years, but Airbnb’s steep decline resets the stock back to a much more reasonable (though still premium, by many measures) valuation. Shares currently trade for 21 times trailing-12-month free cash flow and 34 times current year expected earnings.
Given shifting consumer trends in travel and the remote work movement, Airbnb has a shot at maintaining its growth momentum for years to come. Over $9.3 billion in cash and short-term investments offset by debt of just $2.0 billion could certainly help the company keep the pedal to the metal. But given current market conditions, Airbnb is likely to remain a very volatile stock. It could be a fantastic long-term value, but only buy if you have at least a few years (but the more the better) to hold — and plan to make the travel company part of a diversified portfolio.
Nicholas Rossolillo has positions in Airbnb, Inc. His clients may have positions in the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.