Use the Airbnb Stock Implosion to Your Advantage

 | Nov 17, 2022 03:14AM ET

  • Airbnb had its most profitable quarter in history with a GAAP net income of $1.2 billion, up 45% YoY
  • Investors may be overly paranoid from the company stating that Q4 bookings “would moderate slightly from Q3”
  • While trading at 42X seems expensive, it’s only valued at 20X free cash flow
  • Airbnb’s asset-light model gains more supply from new hosts in weaker economic times as homeowners are even more motivated to earning extra side income

    • Digital lodging platform Airbnb Inc (NASDAQ:ABNB) shares took a plunge on its Q3 2022 earnings release as the forward guidance was tepid. The company was “born” in 2007 as a digital booking and home rental platform connecting hosts with guests to rent out their property for days to weeks.

    It’s an asset-light business model very much like Uber (NYSE: NYSE:UBER), Door Dash (NYSE: DASH), and Lyft (NASDAQ: NASDAQ:LYFT) where Airbnb plays the role of the middleman connecting both sides and taking a commission on the transaction.

    Unlike Uber and LYFT, Airbnb is actually profitable on a GAAP basis. It joins the ranks of other travel hosting services, including Booking.com (NASDAQ: NASDAQ:BKNG), Expedia (NYSE: NASDAQ:EXPE), and TripAdvisor (NASDAQ: NASDAQ:TRIP). Airbnb has made a stunning recovery into the black and in GAAP form since 2021.

    The company felt the sting of a strong US dollar but still remained firmly profitable. However, the US dollar impacts are expected to continue to be a headwind in the near future, with impacts to its ADR starting in Q4. So far, the effects of higher inflation and waning consumer discretionary spending haven’t impacted earnings.

    h2 Recessions Bolster New Host Growth /h2

    Airbnb was born during the 2007 housing bubble. The company noted how its New Hosts on Airbnb grew rapidly, just as in the 2008 normalization to trigger. However, Airbnb claims it’s up against tough year-over-year comparisons for Q4 and hasn’t noticed a material change in consumer spending as demand remains strong.

    They also stated that new tailwinds such as long-term stays and non-urban travel are “here to stay” stemming from the flexibility of remote work and the elastic office. Most importantly, they saw the recovery of both urban and cross-border travel, which comprised the majority of its business pre-pandemic. Guests continue to stay longer (28 days or more), making up 20% of the total gross nights booked. Are investors overreacting to the possibility of normalization? As long as shares stay above the $100 level, the market believes so.