02:36 PM EDT, 04/03/2024 (MT Newswires) -- Airbnb's ( ABNB ) successful word-of-mouth marketing and strong user retention should help drive margin improvement, though much of the near-term benefit is already priced into the stock, B. Riley Securities said in a note emailed Wednesday.

The brokerage initiated coverage on the stock with a neutral rating and a $150 price target, pointing to a number of tailwinds that it sees contributing to the vacation rental company's momentum while highlighting a few challenges, such as stagnating European market share growth. The stock was trading 0.3% down at $159.64 in Wednesday afternoon trade.

The neutral rating reflects the view that current growth and margin prospects are already reflected in Airbnb's ( ABNB ) stock price, leaving the brokerage on the sidelines.

"We believe it is benefiting from healthy secular growth in a category with a large (total addressable market), as well as its rising popularity, growing user base, and high host and guest retention," B. Riley analyst Naved Khan said. "We expect further margin improvement, resulting from scale and marketing efficiency."

Airbnb ( ABNB ) management has said that around 90% of the platform's traffic comes from unpaid channels, with strong usage gains and retention leading to successful word-of-mouth growth, according to B. Riley. This gives Airbnb ( ABNB ) higher marketing efficiency compared with other online travel agencies, including Booking Holdings (BKNG) and Expedia (EXPE), the firm said.

"We view Airbnb's ( ABNB ) innovation and cadence of new feature releases as a core strength and a contributor to growth, as many of the new features help unlock monetization opportunities for the company," Khan wrote. Airbnb ( ABNB ) has rolled out more than 400 upgrades to its platform, including flexible dates and destinations, since 2021, he said.

Growth could be impacted by stagnation in European market share and broader supply constraints, according to B. Riley. The brokerage's analysis indicates that Airbnb's ( ABNB ) share of alternative lodging nights booked in Europe has been largely flat compared with pre-pandemic levels while Booking Holdings has made incremental share gains.

Targeted investments in underpenetrated markets could improve its European share over time, Khan said. B. Riley also sees potential for additional revenue streams through experiences and other host and guest services.

Price: 159.81, Change: -0.30, Percent Change: -0.19