Is Airbnb’s Slowing Growth A Concern?

ABNB: Airbnb logo
ABNB
Airbnb

Vacation-sharing platform Airbnb stock  (NASDAQ: ABNB) published a stronger-than-expected set of Q3 2022 results, as booking volumes and average pricing on its platform continued to trend higher. Revenue for Q3 rose by about 29% year-over-year to $2.88 billion, with earnings rising to $1.79 per share. However, the company’s growth has slowed, down from 58% in the previous quarter and 67% in year-ago period, as the big surge in demand following the easing of Covid-19 travel restrictions continues to taper off. Moreover, Airbnb’s outlook for the holiday quarter was also weaker than expected, with revenue projected at between $1.80 billion to $1.88 billion, marking an increase of just about 20% at the midpoint. While the slowdown in growth is partly due to currency headwinds, the company also expects its take rate, or the percentage of gross bookings that it records as revenue, to decline due to seasonality.  Airbnb stock declined by about 5% in after-market trading on Tuesday and remains down by close to 40% year-to-date, based on the after-market price.

However, we think the stock looks quite compelling at current levels. Based on the after-hours price of about $103 per share, Airbnb currently trades at under 7x projected 2023 revenues, well below the 20x multiples it traded at at its peak in 2021. Airbnb’s business is also emerging to be extremely profitable. Net profits came in at a solid $1.2 billion over Q3, up 46% compared to last year. The company has also generated $2.9 billion in free cash flows over the last nine months, translating into a cash flow margin of a whopping 45%. The company’s total cash balance also stands at about $9.6 billion. Airbnb has also started its share repurchase program, buying back about $1 billion in stock so far this year. This indicates that the company is increasingly confident about its long-term cash flow outlook and should potentially enable it to offset the impact of stock based compensation and potentially eventually boost EPS.

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Now, there are concerns about the broader global economy, and this makes the travel and leisure sector somewhat vulnerable if people decide to scale back on discretionary spending further, if the economy continues to deteriorate. That said, Airbnb’s asset-light model and lower rates versus hotel rooms could prove to be a redeeming factor. We value Airbnb stock at about $145 per share. Our price estimate is about 40% ahead of the current market price.  See our interactive analysis on Airbnb Valuation: Expensive Or Cheap? for more details. See our dashboard on Airbnb Revenue for an overview of Airbnb’s business model and how its revenues are likely to trend.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Nov 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 ABNB Return 2% -35% -26%
 S&P 500 Return 0% -19% 72%
 Trefis Multi-Strategy Portfolio 0% -22% 208%

[1] Month-to-date and year-to-date as of 11/2/2022
[2] Cumulative total returns since the end of 2016

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