Articles by Jeremy Bowman

Business

Airbnb Stock: Is It Time to Throw in the Towel?

On the surface, the investment case for Airbnb (ABNB 0.42%) seems excellent. The short-term home rental platform is disrupting the travel market, providing an alternative to traditional hotels, and the business model is easily scalable. It's not just asset-light, but asset-free, meaning the company owns none of the rooms at which its guests stay. In fact, Airbnb has more rooms than any single hotel chain, with more than 8 million active listings worldwide, and an unmatched global reach with rooms in more than 220 countries and 150,000 cities and towns. By some measurements, Airbnb has been an overwhelming success. The business is highly profitable and it's worth roughly $75 billion. It's made plenty of early investors and insiders wealthy, and it continues to outgrow the overall travel market. However, nearly five years after the company went public, what's also become clear is that the stock has been a huge disappointment, and a gulf has formed between expectations and reality for the disruptive travel marketplace. Airbnb stock closed Dec. 10, 2020, its initial public offering (IPO) day, at $144.71 a share. Nearly five years later, the stock is trading around $120, down 15%, compared with an 86% gain in the S&P 500. It's true that Airbnb debuted during a heady time for tech stocks as the pandemic-era boom was in full effect then, but many of the other high-priced tech stocks that went public then have recovered from the 2022 sell-off and gone on to set new highs. DoorDash, for example, was up more than 50% from its IPO closing level before a recent sell-off, and Palantir Technologies has skyrocketed in the artificial intelligence (AI) boom. Even Snowflake is now trading above its IPO closing price. Not only has Airbnb badly underperformed the S&P 500 during that time, but it's also been left in the dust by its chief rivals, Booking Holdings and Expedia, as the chart below shows. ^SPX data by YCharts The brand is increasingly toxic There's no single factor that's led to Airbnb's underperformance, but there are some notable reasons for the company's struggles. By now, the downside of staying in Airbnb is well known. Complaints on social media are rife about chore lists, hidden fees, bad hosts and check-in experiences, and soaring prices. Airbnb has pushed back on these complaints and made changes, including listing the total price up front, rather than hiding extra fees for things like cleaning. However, those issues have led to bad faith among users. Airbnb began as a small community, and its corporatization as it's grown, though inevitable, seems to have contributed to a lack of trust in the brand. That's also become more visible on a larger scale as it's been the focus of anti-tourism measures and protests in places like Barcelona, Lisbon, and Venice, and local governments have cracked down on Airbnb. For example, the Spanish government called for the removal of roughly 66,000 listings in the country, and New York City banned most Airbnb listings two years ago. Airbnb regularly defends itself by arguing that it provides an economic benefit to local neighborhoods rather than tourist districts and that it allows local hosts to earn supplemental income. However, the company seems to be losing that debate based on the broader pushback in some of the world's biggest tourist markets. The market has matured faster than expected Airbnb has long been priced like a disruptive growth stock due to the nature of its business model and the opportunity in front of it, but it now seems like the days of the home-sharing marketplace's outsize growth are over. It's been six quarters since Airbnb reported revenue growth above 13%, and its growth rate now looks downright pedestrian for the hotel and accommodations industry. As you can see from the chart below, it's trailed Booking Holdings, which makes most of its revenue from hotel bookings, for the last four quarters. ABNB Revenue (Quarterly YoY Growth) data by YCharts What's notable about Airbnb's recent sluggish growth is that it has come even as the company launched its services marketplace and an enhanced experiences marketplace in May, though gross booking value increased 14% in the third quarter, outpacing revenue growth. Still, fourth-quarter guidance calls for revenue growth of just 7% to 10%. At this point, it seems unlikely that Airbnb's revenue growth will reaccelerate to the 20% or beyond that investors typically expect from a growth stock. While the valuation has become more reasonable as its returns have underwhelmed, the upside potential in the stock also seems to be gone, despite CEO Brian Chesky's talk about expanding beyond the core.nAt this point, growth stock investors may want to move on from Airbnb.

Technology

Figma Just Spent $200 Million on an AI Start-Up. Here's Why It Could Be What Investors Have Been Waiting For.

Figma (FIG 3.88%) was one of the hottest IPOs of the year on July 31, surging out of the gate from a listing price of $33 to an intraday peak above $142 the following day. However, since then, Figma, which makes cloud software for user interface and user experience (UI/UX) design, has struggled, falling on concerns about valuation, on forecasts for declining profits as it invests in artificial intelligence (AI) products, and as larger rival Adobe has made progress with its own AI products. The stock is now trading at a post-IPO low under $50, but it recently gave investors one reason to keep faith in the stock: It just acquired an AI start-up. Here's what you need to know. Figma makes another bet on AI On Thursday, Figma announced its acquisition of Weavy, which it describes as a platform that brings generative AI and professional editing tools together. It did not say what it paid, though estimates peg the value at around $200 million. Now renamed Figma Weave, the new product will complement the company's tools for building out image, video, animation, and other forms of media. Weavy allows users to choose from a wide variety of AI models, including OpenAI's Sora video generation platform, giving users a broad range of design choices and the ability to remix and refine them down to small details. Weavy is less than a year old, but Figma touted the strength of its community and called Weavy "a tool that is just a joy to use." Is Weavy a game changer for Figma? On its own, Weavy is unlikely to be a difference-maker for Figma. In fact, the stock slipped on Thursday, seemingly in response to the news, and amid a broader sell-off on concerns about overspending in AI across the industry. However, the Weavy acquisition is just one component of a larger strategy to harness the power of AI, as the company launched a number of AI-based products in the second quarter. Software companies like Figma are in the land grab phase of AI, and it's important for them to roll out products to land new customers while investing in this technology. Delaying could be costly, and it could lead Figma to fall behind a competitor like Adobe or even an AI start-up. Looking at it that way, the Weavy acquisition looks like a smart move, and Figma's aggressive approach in AI should pay off over the long run. Investors might have to be patient, but the company is executing well, despite the recent price action in the stock.