Airbnb Inc. (NASDAQ: ABNB) is at a crossroads. Rising COVID-19 cases could prove brutal for online travel agencies (OTAs), but the valuation for this stock is looking good, according to BTIG, after falling off since February. The fundamentals seem to be there, and the firm sees revenue growth ramping up in the coming years.

BTIG recently upgraded Airbnb to a Buy rating with a $170 price target, which implies upside of 22% from the most recent closing price of $139.25. Overall, the brokerage firm did not think Airbnb was interesting over $200 a share back in February, but at less than $140, BTIG sees opportunity in this stock.

In the near term, BTIG does not have a good estimate on how COVID-19’s resurgence will affect travel, but the firm thinks that Airbnb is better situated than its industry peers. For the initial lockdown, Airbnb was down less comparatively, and any increase in restrictions would hurt but not nearly as bad for peers within the industry. BTIG went as far as to say that if the rising case counts do not yield restrictions or change behavior that Airbnb could see a surge in second-quarter bookings to the tune of 20% above consensus estimates.

BTIG detailed its perspective on Airbnb in the longer term:

We step up our 2022-2025 revenue estimates with an increase in our 4-year CAGR from 17% to 20%, driven by two assumptions: 1) We take our 2025 category penetration assumption from 25% to 28% vs. ~12% in 2019 (US eTravel penetration went from ~10% in 2001 to ~30% by 2006); 2) ABNB’s share rises from 55% in 2019 to 57% by 2025 (likely conservative assumption). We note that our estimates do not incorporate potential ancillary opportunities like sponsored listings or material contributions from Experiences.

Like other marketplaces (think rideshare and delivery), BTIG sees opportunity to augment revenue via sponsored listings. The firm said it would peg the opportunity at one to two points of bookings, with each point worth about $1 billion to revenue by 2025. That sort of high margin revenue could be dropped to the bottom line or to subsidize host/guest fees to stimulate bookings. While this is difficult to size, with the experiences opportunity, each point of the total addressable market (about $250 billion) would be worth roughly $500 million to revenue. These two could boost revenue compound annual growth rate (CAGR) by three to six points.

Overall, BTIG thinks Airbnb has a solid growth profile and a very pronounced competitive moat. In the next few years, the firm sees revenues pushing 20% CAGR and a 40% earnings before interest, taxes, depreciation and amortization margin by 2025. BTIG gave its investment thesis as follows:

We have favorable view of ABNB fundamentals on the idea that it should be at the leading edge of the travel recovery, should grow from there at ~5x the pace of the traditional OTAs and we see the potential for a strong margin profile given a significant advantage in direct traffic. Our hang-up is valuation.

Airbnb stock was last seen relatively flat on Thursday, at around $139, in a 52-week range of $121.50 to $219.94. The consensus price target is $172.50.

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