Is Airbnb’s slowing growth a concern?

Holiday sharing platform Airbnb Stock (NASDAQ
NDAQ
: ABNB) released a series of stronger-than-expected third quarter 2022 results, as booking volumes and average prices on its platform continued to rise. Third-quarter revenue rose about 29% year over year to $2.88 billion, with earnings reaching $1.79 per share. However, business growth has slowed from 58% in the previous quarter to 67% a year ago, as the surge in demand following the easing of Covid-19 travel restrictions continues to to diminish. Additionally, Airbnb’s outlook for the holiday quarter was also weaker than expected, with revenue projected between $1.80 billion and $1.88 billion, marking an increase of about 20% mid-term. While the slowdown in growth is partly due to currency headwinds, the company also expects its take rate, or the percentage of gross bookings it records as revenue, to decline due to seasonality. Airbnb stock was down about 5% in aftermarket trading on Tuesday and remains down nearly 40% year-to-date, based on aftermarket price.

However, we think the stock looks quite attractive at current levels. Based on the after-hours price of approximately $103 per share, Airbnb is currently trading at less than 7x forecast revenue for 2023, well below the 20x multiples it traded at its peak in 2021. Airbnb’s business is also proving extremely profitable. Net profit reached a solid $1.2 billion in the third quarter, up 46% from a year ago. The company also generated $2.9 billion in free cash flow over the past nine months, which translates to a whopping 45% free cash flow margin. The company’s total cash balance is also around $9.6 billion. Airbnb also launched its share buyback program, repurchasing around $1 billion in stock so far this year. This indicates that the company is increasingly confident about its long-term cash flow prospects and should potentially allow it to offset the impact of stock-based compensation and possibly increase EPS.

Now there are concerns about the global economy as a whole, which makes the travel and leisure sector somewhat vulnerable if people decide to cut discretionary spending further, if the economy continues to deteriorate. That said, Airbnb’s asset-light model and lower rates compared to hotel rooms could prove to be a redeeming factor. We value Airbnb shares at around $145 per share. Our price estimate is about 40% higher than the current market price. See our interactive analysis on Airbnb Rating: expensive or cheap? for more details. View our dashboard at Airbnb revenue for an overview of Airbnb’s business model and likely revenue path.

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