Airbnb Inc (NASDAQ:ABNB) shares are trading lower after Needham analyst Bernie McTernan downgraded the stock from Buy to Hold.

The market has an overly optimistic view of Airbnb's potential to leverage artificial intelligence (AI) to disrupt the global online travel agency (OTA) industry, McTernan says.

The analyst projected first-quarter revenue and EPS of $2.05 billion and $0.73.

Airbnb CEO Brian Chesky spoke on a February earnings call about expanding beyond the company's core business.

McTernan inferred this as AI-enabled OTA, where consumers could book an entire trip, not just a short-term rental. This makes a lot of sense, as it leverages Airbnb's scale. Consumers will likely come to the platform earlier in the booking journey. Plus, the emergence of generative AI can provide a differentiated product.

However, he also flagged that the shift is coming at a time when Airbnb growth is slowing and converging with Booking Holdings Inc (NASDAQ:BKNG) and Expedia Group, Inc (NASDAQ:EXPE) after the pull-forward from the pandemic, which resulted in 2023 bookings that were nearly double 2019 levels.

Despite the lower growth outlook, Airbnb trades at a premium to peers relative to growth. The market, he noted, is too bullish on the near-term potential for the AI OTA app.

Airbnb also faces potential challenges in generating the global scale necessary to impact estimates. There's potential for price competition with incumbents and the need to unlock hotels that likely see Airbnb as an existential threat.

Meanwhile, Benchmark analyst Daniel L. Kurnos initiated coverage on Airbnb with a Buy rating and a price target of $190.

Even as competition has increased in conjunction with growing awareness and adoption of alternative accommodations within the broader travel market, research shows that Airbnb has retained its number 1 position with consumers, hosts, and unaffiliated travel experts, as per the analyst.

He noted that a lot of the low-hanging share price fruit has been picked at current levels but still views Airbnb as a sound momentum play, with potentially material upside to fundamentals over the next 12-36 months through a combination of market expansion and existing market penetration gains, notable global events this year, including Euro 2024 and the Paris Olympics, growth in service fees, ranging from the previously announced cross-border fee to upcoming incremental service launches and the oft-discussed but still vague timing around a potential foray into advertising via sponsored listings.

The analyst projected first-quarter revenue and EPS of $2.06 billion and $0.17.

Airbnb stock gained over 40% in the last 12 months. Investors can gain exposure to the stock via Global X PropTech ETF (NASDAQ:PTEC) and First Trust US Equity Opportunities ETF (NYSE:FPX).

Price Action: ABNB shares traded lower by 0.95% at $158.76 on the last check Thursday.

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