Airbnb (ticker: ABNB) stock has had a wild ride since its initial public offering in December 2020.

Just over a year ago, during the midst of the pandemic, the travel company's revenues plummeted and its bookings hit rock bottom. By December, Airbnb had gone public. Initially priced at $68 a share, the stock closed its first trading day on the Nasdaq at $144.71 per share, more than doubling its IPO price and implying a $86.5 billion valuation.

Shares continued to climb through the winter and, by mid-February, had reached an all-time high of more than $216 per share. That said, the post-IPO surge did not last forever, and in mid-May, Airbnb stock fell to $132 per share.

Positive results from the first quarter and newly unveiled upgrades to the rental platform have since given the stock some fuel. However, investors remain concerned about a sky-high valuation and continued net losses.

At present, a fully reopened economy and the summer travel season make Airbnb stock an enticing pick for your portfolio. Before you make a decision, though, consider the following points:

— Airbnb at a glance.

— Pros of buying.

— Cons of buying.

— The bottom line: Should you buy Airbnb stock?

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Airbnb at a Glance

In 2007, current CEO Brian Chesky and fellow co-founder Joe Gebbia welcomed three guests to stay at their San Francisco home. A design conference was in town, and with hotels booked and the two roommates strapped for cash, they thought why not throw an air mattress on the floor, provide free Wi-Fi and offer breakfast in the morning.

In August 2008, with the help of Gebbia's former roommate, now chief strategy officer Nathan Blecharczyk, the three officially launched their website and room booking service, Airbed & Breakfast, just in time for the Democratic National Convention. Today, 13 years later, that idea has become a global travel company with a market capitalization of more than $90 billion.

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Airbnb offers a unique business model within the travel industry. Unlike a traditional hotel chain that must operate, manage and renovate large properties, Airbnb owns nothing except a corporate headquarters and a lot of patents. Instead, the Airbnb platform allows individuals to offer their home or apartment as a place to stay for travelers.

Currently, more than 800 million travelers across 100,000 or so cities in almost every country in the world have stayed with more than 4 million unique hosts. At checkout, both guests and hosts pay Airbnb a "service fee," which represents a percent of the total booking cost and becomes their primary source of revenue.

Importantly, this business model means that sales are driven solely by a user-host interaction, with Airbnb merely serving as the middleman. As a result, the company's platform and technology are its most valuable assets, and Airbnb's continued success rests on its ability to continue attracting both hosts and users.

Pros of Buying

Since share prices fell to a low in May, Airbnb's stock has steadily recovered, thanks in large part to strong Q1 results, rapidly recovering travel trends and the release of more than 100 new upgrades aimed at improving functionality for users and hosts.

In Q1 2021, Airbnb reported 64.4 million nights and experiences booked, a 13% increase from the same period last year. Significantly, gross booking value (GBV) — the company's way of tracking the dollar value of its bookings, which includes host earnings, service and cleaning fees, and taxes — rose to $10.3 billion, a 52% year-over-year increase. This implies that the average booking price has increased substantially, an important metric for a company that derives revenue as a percent of booking value.

Revenue increased to $887 million, a 5% increase year over year, and while the company continued to post a net loss, adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, improved from a $334.3 million loss in the same period prior to a $58.6 million loss in Q1.

Once the pandemic ends, Airbnb expects the "rebound to be unlike anything that we that we have ever seen before and we expect travel to be very different than before," according to Chesky's comments on the latest earnings call.

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If Chesky is correct, investors can expect Airbnb to have a big 2021. While a rapidly reopening economy bodes well for any travel company, Airbnb's unique ability to offer entire homes and limitless locations puts it in a great position to capitalize on new, post-pandemic travel trends.

In Q1, 24% of bookings were for stays of 28 nights or longer, compared with 14% in 2019. This is a bullish omen for a platform that offers entire homes in some of the world's most rural places.

Airbnb's unique business model is the company's secret sauce. It faces no direct competitors at its scale, and its model allows the company to enjoy a low cost of revenue and potentially high, scalable margins.

As Airbnb does not own or operate any real estate, it avoids many of the capital and operating expenditures a regular hotel incurs: land, construction, renovations, property tax, a doorman or a maid. For the year ended Dec. 31 2020, cost of revenue was only 26% of total sales, giving Airbnb ample room to boost margins in the future.

What's more, the more than 100 upgrades released in May attempt "to refine and improve every aspect of the Airbnb service, from our website and app to our community support and policies." Going forward, these upgrades will hopefully expand the pool of both users and hosts for Airbnb.

Cons of Buying

While Q1 earnings showed notable improvements to revenue and EBITDA, the company continues to incur ballooning net losses. Investors appear concerned that post-IPO, the company's sky-high valuation may be more a reflection of initial investor interest than a fundamental valuation.

Airbnb has posted increasing losses of $16.9 million in 2018, $674.3 million in 2019 and $4.6 billion last year. Much of the 2020 loss can be attributed to the pandemic, but a 182% increase in product development and $2.8 billion in stock-based compensation charges tied to its IPO were also to blame.

Management emphasizes that the extent of these expenditures should be one-time, non-recurring expenses and don't reflect a fundamental analysis of the business model. Ultimately, Airbnb's ability to rein in these extraneous expenses will be pivotal to its continued growth and success.

Currently, Airbnb trades at around 26 times trailing 12 months sales, compared to the hotel industry average of 5.57. While Airbnb does not masquerade as a value stock and is fundamentally different than its competitors, investors should be wary of this sheer level of disconnect from the broader industry.

Hotel booking website Expedia Group ( EXPE), which owns Airbnb's closest rival, Vrbo, currently trades at around 6.01 times sales, and legacy hotel chains Marriott International ( MAR) and Hilton Worldwide Holdings ( HLT) trade at 5.71 and 10.85 times sales, respectively.

Going forward, Airbnb's success rests on its ability to grow its bench of available hosts and thus increase the number of listings available to users. However, there must be a finite number of people willing to open their front doors to strangers. The size of that pool could determine just how big Airbnb might become.

The Bottom Line: Should You Buy Airbnb Stock?

Airbnb stock looks like a good buy, but perhaps not right away.

After a successful IPO in late 2020 sent the stock price soaring through mid-February, investors have now had time to digest both last year's annual report and Q1 2021 results. Significant losses soured the appetites of some investors, but others remain enticed by large increases in gross booking value and many new platform upgrades.

Ultimately, Airbnb has successfully cornered the peer-to-peer travel market and shows the potential to become a high-margin, low-maintenance operation capable of producing consistent revenues. Investors should consider buying shares, but they might wait for the post-IPO buzz to subside — when a stock price that's more in line with the company's fundamental value could present a better entry point.

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