Why I’m Buying Airbnb Stock Into Earnings (NASDAQ:ABNB)

Over the previous decade, the tech business has skilled exceptional progress. Disruptive firms might safe important funding and function at a loss whereas in search of product-market match. Investors typically prioritized metrics like consumer progress and complete addressable market, paying little consideration to how these firms would generate income.

However, these days have handed. Businesses should now display pathways to profitability or face devastating penalties. The following CBInsights graphic illustrates how once-prominent firms have been decreased to mere shadows of their former selves.

One firm on that listing deserves additional examination, significantly as its earnings launch approaches on Tuesday, May ninth: Airbnb (NASDAQ:ABNB).

Airbnb has steadily developed a strong market connecting people with properties and rooms to hire with these in want of lodging. Although COVID considerably impacted the enterprise in 2020, the corporate has since expanded its common every day charge, the variety of nights and experiences bought, gross reserving values, and take charge. These essential metrics point out that Airbnb is poised for continued progress regardless of difficult comparisons.

Let’s delve into why Airbnb is a tech stock value contemplating for the lengthy haul.

Metric Growth Looks Strong

The journey business was severely impacted by COVID, making it difficult to evaluate Airbnb’s metrics. However, I’d wish to current a number of key charts that spotlight the corporate’s promising future.

First, let’s talk about nights and experiences. The next variety of nights stayed interprets to elevated income for Airbnb, making this metric essential to watch.

In Q1 of final yr, Airbnb recorded 102 million nights and experiences, setting a excessive bar for comparability. Despite the difficult macro atmosphere, which we’ll discover within the subsequent part, I consider the corporate can surpass this benchmark.

As evident within the chart above, nights and experiences tapered off towards the top of final yr. However, this sample is in keeping with earlier years, the place Q1 and Q2 sometimes expertise a surge adopted by a decline (with 2021 being an exception as a result of pandemic).

Each evening booked incurs a price, permitting us to derive Airbnb’s common every day charge from the info. This determine surged post-pandemic however has barely declined in current quarters. Given inflation and demand, it’s more likely to rise once more over the subsequent few quarters.

Lastly, by primarily combining the 2 charts above, we arrive at gross reserving volumes. As we strategy Q1 earnings, we anticipate seeing a lift on this metric.

Demand For Travel Shows No Signs of Slowing

Flights, resorts, and Airbnb stays have grow to be more and more costly, with no indicators of slowing down within the foreseeable future. The cause behind these excessive costs is the hovering demand for journey and shoppers’ willingness to pay for it.

The NPD Group reported that one-third of Americans plan to journey extra in 2023. This discovering is supported by Ipsos data, revealing that over 50% of Americans intend to make a journey throughout the subsequent six months.

Recent earnings studies from firms like Booking Holdings (BKNG) additionally present priceless insights into the favorable Q1 atmosphere. The company’s CEO stated:

We noticed a robust begin to the yr with first-quarter room nights and gross bookings reaching our highest quarterly ranges ever and each metrics surpassing our earlier expectations.

These constructive indicators contribute to the anticipation that Airbnb will ship a robust quarterly report. This optimistic outlook is without doubt one of the foremost causes I’ve been rising my place forward of the earnings launch. The second key issue driving my funding choice is Airbnb’s product management.

Exceptional Product Leadership

It’s uncommon to discover a firm as dedicated to making a product customers love as Airbnb. CEO Brian Chesky actively seeks suggestions on Twitter and retains customers knowledgeable about incessantly requested options.

Airbnb lately introduced a sequence of latest options aimed toward enhancing the consumer expertise. Looking for prolonged stays? Now you possibly can search by “months.” Want to see the entire value of your journey, together with charges? No downside!

Another concern, home guidelines. Frequent Airbnb customers could have encountered extreme cleansing requests regardless of paying a considerable cleansing price. The company is working to make these rules more transparent and is contemplating penalizing hosts with unreasonable calls for.

I extremely advocate that anybody investing in (or contemplating investing in) Airbnb comply with Brian on Twitter. It’s difficult to guess towards a founder-led enterprise with a CEO who’s as deeply invested within the buyer expertise as Brian seems to be.

The Upside

Airbnb has grow to be the go-to identify for short-term leases. The firm can preserve progress on this sector by offering a dependable expertise for purchasers, whether or not they’re vacationing or working remotely.

Achieving that is difficult with over 4 million hosts on the platform, however Airbnb should guarantee all hosts prioritize the client’s finest pursuits. While most do, the corporate should go the additional mile in instances the place they do not.

Recent product releases and updates from CEO Brian Chesky have centered on enhancing buyer belief, corresponding to lowering assist response instances and simplifying post-visit evaluations. As Airbnb continues to enhance its market, belief would be the main goal, and it appears the corporate is making important strides in fostering that belief.

For FY23, I anticipate Airbnb’s progress will gradual in comparison with final yr however will stay in double digits. I count on the corporate to promote 460 million nights and experiences, a 16.8% progress over this yr. This enlargement will consequence from broader market journey progress and elevated belief within the platform.

With a barely greater common nightly charge, gross reserving worth ought to attain roughly $75 billion. Assuming a barely decreased take charge of 13%, in comparison with 13.3% final yr, Airbnb’s 2023 top-line income needs to be round $9.75 billion. If the corporate maintains a internet margin of 23%, that will lead to $2.25 billion in internet revenue for the yr.

At a decreased PE of 38, this results in a market cap of $85.2 billion, a 12.7% enhance over in the present day. Although the PE is under Airbnb’s common, it is not the bottom the corporate has seen. Its robust affiliation with short-term leases and skill to outperform rivals like VRBO justify this greater PE ratio.

The Opposing View

It’s important to think about the opposing view, and for Airbnb, that perspective boils all the way down to decreased progress resulting in contracting multiples.

Assuming all different progress parts talked about earlier however contracting the a number of to a still-high 30x PE, Airbnb would have a $67 billion valuation (or be 11% overvalued in the present day).

Even worse, if the corporate had been to fall extra according to the market at a 22x PE, Airbnb’s valuation would want to drop by round 35% to succeed in that degree.

As a long-term investor planning to carry Airbnb, I’ll even be maintaining a tally of the corporate’s relationship with “Superhosts.” These hosts play an important function in Airbnb’s future, and the platform should guarantee their satisfaction. There have been studies of some Superhosts creating their very own instruments to bypass Airbnb’s 10-15% charges. If this development turns into extra widespread, I could must reassess my place.

Conclusion

Investing certainly depends on narratives, and for me, the story right here revolves across the continued progress and eagerness of millennials to journey, mixed with an organization that genuinely cares about its clients and strives to supply an distinctive expertise.

Could one argue {that a} 38x PE is just too excessive? Certainly. Is it attainable to argue that journey may very well be negatively impacted by an impending recession that has been “looming” for the previous 18 months? Absolutely. However, countering these considerations is an organization that has grow to be synonymous with a thriving journey section, demonstrating robust execution and displaying no indicators of slowing down within the brief time period.

I’ve a ‘purchase’ score on Airbnb and will probably be shopping for into earnings on May ninth.