We are almost more than a quarter of the way through the year, and the Nasdaq has already put up some impressive numbers.
The tech-centric index is up 15% through April 11. This is thanks to optimism that the economy will avoid a recession and due to the drumbeat of layoffs at major tech companies, showing that they are responding to demand. to investors for additional income.
However, technology investors are not out of the woods yet. The Federal Reserve is expected to raise interest rates by another 25 basis points this year, and the upcoming earnings season will be a tough one. Most major tech companies reported a sharp decline in growth in the fourth quarter.
If you’re looking to beat the market this year, there’s one tech stock in the travel sector that’s well-positioned to weather the headwinds the rest of the Nasdaq is feeling.
that’s it Airbnb (ABNB 0.61%), the leader in home sharing. This is why it looks set to overtake the market this year.
![Man walking on the stairs outside the house.](https://g.foolcdn.com/image/?url=https%3A%2F%2Fg.foolcdn.com%2Feditorial%2Fimages%2F727914%2Fairbnb-chiang-mai.jpg&op=resize&w=700)
Image source: Airbnb.
1. High interest rates are good for Airbnb
For most technology stocks, rising interest rates are a negative. Higher interest rates make long-term earnings worth less, so unprofitable, high-growth stocks like those in the software sector have been hit particularly hard by the Fed’s rate hikes.
Higher rates also encourage investors to shift money from stocks to bonds, because they can get a constant “risk-free” yield from stocks, rather than facing the risk of stocks. .
However, Airbnb doesn’t operate like a typical tech company. As a travel marketplace, the company actually makes money from earning interest on the money it collects between bookings and stays.
Last year, the company brought in $186 million in interest income. That number is almost certain to move higher in 2023 based on the Fed’s forecast of the Fed funds rate ending the year at 5% to 5.25%, up 25 basis points from where it is now. Growth in the underlying business will also support an increase in interest income.
Based on the $103 million the company earned in interest income in the fourth quarter, it would not be surprising to see Airbnb bring in nearly $500 million in interest income by 2023, given the expected business growth and the interest rate of the Fed. Last year, the company brought in $1.9 billion in total net income, so that kind of increase in interest income would account for a 16% increase in net income.
Analysts are calling for a 19% increase in earnings per share, a sign that Airbnb will beat analyst estimates quickly this year as well.
2. Demand for travel is strong
The travel industry is not generally thought of as recession-proof, but 2023 may be the exception that proves the rule.
The leader in home sharing, peers want Holding a Booking and Expedia, and the airline industry all pointed to strong demand trends early in the year. Airbnb said it was seeing summer bookings come in Europe even earlier than usual – a sign that people are still eager to spend on travel.
After a long time during the pandemic to spend on things for the home, people seem eager to go out and travel regardless of the state of the economy.
That could change, especially in the event of a severe recession. But for now, Airbnb seems likely to escape the recessionary malaise that has plagued tech subsectors such as enterprise software, e-commerce, and digital advertising.
3. Business can adapt to an economy
Since Airbnb is a travel business, it may not be accurate to say that it is recession-proof. But it has a unique way of withstanding a recession that peers in the travel sector such as online travel agencies and hotels do not.
Anyone can list a room or a house on the platform, making it a great way to earn extra income, or even a primary source of income. There is already evidence that hard times drive more people to host the platform.
For example, the company said that in the third quarter, it saw a “disproportionate” 31% increase in one-bedroom listings due to the crisis in the cost of living in Europe and other parts of the world.
Management believes that supply and demand growth is highly correlated and new hosts will help bring in other hosts once they are successful. It is also worth noting that Airbnb was founded during the 2008-2009 financial crisis, with the idea that the founders and others could make more money by renting out their homes to strangers for a short period of time. .
That idea proved very popular. Even if a recession hits, Airbnb should see steady growth in new supply, which should support the stock over the long term.
Year to date, the stock is up 33%. It should continue to outperform the Nasdaq thanks to strong travel demand, its ability to withstand a recession, and because it will benefit from high interest rates.