December 9, 2023


Fly with us

Target’s CEO Has Great News for Airbnb and Other Travel Stocks

On May 18, following the release of its fiscal first-quarter 2022 report, Target (TGT -2.31%) held its earnings conference call. On that call, management offered several insights into how U.S. consumer behavior has been evolving as locales around the world reopen from their pandemic restrictions.

Based on the spending of Target customers, investors can feel good about the financial health of the U.S. consumer overall. However, within household budgets, some shifts are going on that are important to recognize. One of those shifts, in particular, is excellent news for Airbnb (ABNB 0.72%) and other travel stocks.  

Kids running outside a beach house as parents observe.

Image source: Getty Images.

Target’s sales suggest Americans are preparing to travel

“Luggage [sales] grew more than 50% as the world continues to reopen, and we reunite with the places and people we have missed visiting,” Chief Growth Officer Christina Hennington said during the call. To put that figure into context, Target’s overall sales grew by 4% in the fiscal quarter, which ended on April 30.  

Later on the call, CEO Brian Cornell said: “While we were certainly anticipating the impact of overlapping stimulus and consumer and guest returning to more normal activities, we did not expect to see the dramatic shift in many categories that we’ve talked about, the shift from categories like TVs to luggage, from small appliances to toys, and guests celebrating, being out with friends.”

That’s excellent news for the travel industry. Note that all of Target’s stores are in the U.S., so its data reflects only the behavior of domestic consumers. Interestingly, Airbnb travelers pay a higher average daily rate in the U.S. Of course, folks buying luggage at Target last quarter are probably planning to take trips later in the year, perhaps in the summer or over the holidays in fall and winter.

Airbnb management highlighted that it was experiencing robust demand for reservations later in the year; the data from Target offers further support for that claim. That’s understandable. Worldwide spending on hotels and resorts, which hit $1.5 trillion in 2019, crashed to $610 billion in 2020. Its rebound in 2021 only brought the figure back up to $950 billion.

Considering the substantial pent-up demand for travel that has built up over the past several years, it would not be surprising to see travel spending rebound closer to an annual level of $2 trillion. It may not get quite there in 2022, as the persistent threat of COVID-19 is still causing travel restrictions in many parts of the world, and varying degrees of caution and hesitancy among potential travelers — but maybe in 2023 or 2024.

ABNB Price to Free Cash Flow Chart

ABNB Price to Free Cash Flow data by YCharts

Yet another reason to buy Airbnb stock

By some valuation metrics, Airbnb stock is arguably cheaper than it has ever been. The company has taken a more disciplined approach to expense management, which has allowed its profitability and free cash flow to surge along with revenue that was 80% higher in Q1 2022 than in Q1 2019. The stock has gotten hammered during the broader market sell-off, but that provides an opportunity for long-term investors to buy it at a discounted price.

ABNB Revenue (Quarterly) Chart

ABNB Revenue (Quarterly) data by YCharts

As more consumers make plans for long-postponed trips, Airbnb’s stock is unlikely to remain at these historically cheap levels.