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Why Airbnb (ABNB) Stock Is Trading Up Today

StockStory - Fri Dec 1, 2023

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What Happened:

Shares of online accommodations platform Airbnb (NASDAQ:ABNB) jumped 5.8% in the afternoon session after stocks rallied as traders continued to expect more accommodating policy decisions from the Fed in the coming months. Fed Chair Jerome Powell said in a speech, "It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease..." However, the market seems to be shrugging off these comments for now despite them coming from the Fed Chair. The Federal Reserve has been raising interest rates to combat inflation, and the latest data showed that their efforts may be paying off. As a result, there seems to be increased optimism in the market that because inflation is stabilizing, interest rates could stabilize or even move lower. As a reminder, lower rates are good for stock valuations, especially for tech companies where the market needs to discount back cash flows further out in the future. When the math is done to discount these cash flows back to today, a lower assumed discount rate leads to higher present values.

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What is the market telling us:

Airbnb's shares are very volatile and over the last year have had 18 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The previous big move we wrote about was 17 days ago, when the company gained 5.3% on the news that the latest inflation data from the Bureau of Statistics revealed that US consumer prices rose 3.2% in October, slightly better than the expected 3.3%. That's down from 3.7% in September and a peak of 9.1% in June of last year. Additionally, key categories such as food at home, electricity, and gasoline rose even less than the headline 3.2%. In fact, gas prices decreased year on year. This suggests that inflation is gradually easing, which is positive news for investors and consumers. 

The Federal Reserve has been raising interest rates to combat inflation, and the latest data indicates that their efforts may be paying off. However, inflation is still above the Fed's target of 2%. Regardless, the lower-than-expected inflation numbers could give the Fed more room to keep rates lower. As a reminder, lower rates are a tailwind for stock valuations, especially tech companies where the market needs to discount back cash flows further out in the future. 

In addition to the macro tailwinds, the company announced the acquisition of AI startup Gameplanner.AI. According to CNBC, citing unnamed sources, the deal is valued at just under $200 million. Gameplanner.AI was cofounded by Adam Cheyer, one of the founders of Siri.This could prove to be a helpful and long-term positive acquisition because because AI could improve discovery on the platform, leading to a better customer experience. for example, hotels have a limited number of room types/sizes/layouts. ABNB listings are all different, with associated reviews. AI and LLM could help users better surface what they like and what they are looking for.

Airbnb is up 56.9% since the beginning of the year, but at $133.09 per share it is still trading 13.2% below its 52-week high of $153.33 from July 2023. Investors who bought $1,000 worth of Airbnb's shares at the IPO in December 2020 would now be looking at an investment worth $920.25.

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