Editor’s Note: Today’s article shows how Jim Pearce identified that Airbnb (NSDQ: ABNB) was “priced to perfection” — and closed the resulting trade at 189% in six weeks when the reckoning arrived. That same discipline shapes his Personal Finance briefing, which focuses on a different group of companies: not the ones still waiting to prove AI works, but the ones already using it to quietly widen their margins. See the AI Margin Rotation briefing →

If you think Airbnb (NSDQ: ABNB) is one of the great stock market success stories of this decade, consider this. Over the past five years, its share price lost 15 percent while the S&P 500 Index gained 73 percent (through 9/24).

That may surprise a lot of people, but I saw it coming. In fact, I wrote about it in December 2020, the week the company went public (“Airbnb IPO Houses a Host of Problems”).

At that time, the coronavirus pandemic was playing havoc with Airbnb’s revenue stream. Nevertheless, its share price more than doubled on the first day it started trading publicly.

Four months later, I elaborated on my concerns facing the company (“Airbnb: No Room for Error”). By then, its share price was plummeting due to a 21 percent decline in bookings during the first quarter of 2021.

Of course, Airbnb is not to blame for the pandemic. In fact, the company did an admirable job of adapting to an extremely difficult set of unforeseeable circumstances.

Nevertheless, the pandemic exposed a serious flaw in Airbnb’s operating model. It was entirely dependent on an inventory over which it had no direct control.

Slam the Door

That concern came home to roost last week. A Wall Street analyst published a report citing artificial intelligence (AI) as a threat to Airbnb’s revenue stream. Specifically, the possibility that property owners may bypass Airbnb by using AI agents to solicit and execute bookings, thereby cutting out the middleman.

That’s all Wall Street needed to hear to slam the door on Airbnb. On September 23, ABNB closed below $150 after trading above $193 the month before.

Something else happened the month before. On August 13, I recommended a put option trade on ABNB to my subscribers (a put option increases in value when the price of the underlying security goes down).

That day, ABNB closed near $185. So, I recommended the put option that expires on November 20 at the $170 strike price, which could be bought for less than $8.

Ironically, ABNB was rising at that time due to excitement about the efficiencies that AI could provide to Airbnb’s financial performance. I said then, “investors appear to have overstated the long-term ramifications of the company’s recent adoption of artificial intelligence (AI) to improve its operating metrics.”

I further noted, “At this morning’s opening share price of $181, ABNB is valued at 34 times forward earnings and 8 times sales compared to multiples of 21 and 3.8, respectively, for the S&P 500 Index. From a technical perspective, its relative strength index (RSI) of 74 and moving average convergence/divergence (MACD) of 9 suggest the stock has become overbought and could soon reverse direction.”

House of Cards

Of course, I had no way of knowing that an analyst was getting ready to take a wrecking ball to Airbnb. However, I did know that ABNB was “priced to perfection” and poised to plunge at the first whiff of bad news.

That is what I refer to as a “profit window” since the opportunity to act on it is limited. If you wait until the bad news hits, the window will have already slammed shut.

I’m glad I didn’t wait. Last week, while ABNB was trading around $150, I closed out that position with a return on investment of 189 percent in just six weeks.

I could have waited until that option expires in November to see how much further ABNB might fall. But once I got the big share price movement I was looking for, I decided to take the money and run.

I see profit window opportunities like this all the time. Back when everyone else thought Airbnb was a valuable property, I saw a house of cards. All it took was one puff of wind to knock it down.

I closed the ABNB position not because I had advance knowledge of that analyst’s report, but because at $185 the stock was priced as though nothing could ever go wrong. That “show me” moment always arrives eventually. The question I keep coming back to in Personal Finance is which companies are on the right side of that dynamic — not the ones waiting to prove AI works, but the ones already using it to widen margins quarter after quarter. Right now I think that group is underpriced and under-followed. See the AI Margin Rotation briefing →