Ron Baron’s recent investment in Airbnb seems timely

Shares of Airbnb Inc. (NASDAQ:ABNB) are down 28% this year despite a dramatic recovery from the pandemic-induced drop in revenue and the release of strong second-quarter results.

Investor sentiment did not improve after the earnings release in early August as the company narrowly missed revenue estimates and provided a gloomy forecast for Nights and Experiences in the third quarter. . However, consumer spending on travel remains strong and Airbnb appears to be enjoying a long growth streak, supported by the industry’s promising long-term outlook.

In addition, renowned investor Ron Baron (Professions, Wallet), which runs Baron Capital, added the stock to its portfolio during the second quarter. He previously sold Airbnb in the third quarter of 2021.

Ron Baron’s recent investment in Airbnb seems timely

Summer tourism trends continue to drive growth

Even though inflation is pushing consumers to reduce their spending, travel seems to be the least affected segment. Summer travel demand clearly demonstrates that people are eager to hit the road after long periods of mobility restrictions. Airbnb is taking advantage of this trend.

Over the past 12 months, the travel agency has also introduced several innovative features, which are also driving growth and accelerating business operations.

Airbnb had a strong second quarter with revenue up 58% year-over-year to $2.1 billion and net income reaching $379 million, making the three-month period the second quarter the company’s most profitable since its inception. Earnings per share of 56 cents beat the 43 cents predicted by analysts.

Exhibit 1: Airbnb’s quarterly revenue eclipsed pre-pandemic levels

Ron Baron's recent investment in Airbnb seems timely

Ron Baron’s recent investment in Airbnb seems timely

The company has recovered significantly from the pandemic decline thanks to its adaptable business model and continued innovation. Unlike hotels and lodges, Airbnb is less impacted by inflation because its sharing economy business model caters to all types of travelers. By allowing owners to list accommodations on its platform, the company has enabled travelers to find places that otherwise would not be seen or considered. This is reflected in demand for non-urban listings, which has grown nearly 50% since the second quarter of 2019. This feature also provides the company with significant competitive advantages as it allows Airbnb to operate in locations considered unprofitable. by independent hotel chains.

Airbnb had more than 103.7 million nights and experiences booked in the second quarter, up 25% year-over-year and 24% from the same quarter in 2019. This is the highest quarterly figure on record, but still below Wall Street expectations. The company said business was impacted by flight cancellations. This is unsurprising given better than expected summer travel demand and labor shortages that have led to airport chaos such as flight cancellations, delays and lost baggage, especially in Europe. Flight delays in the United States hit a record high in July as airlines struggled to hire employees. As a result, the company experienced more cancellations than expected during the second quarter. As airlines gradually recover, Airbnb expects third-quarter bookings to grow about 25% year-over-year.

In the second quarter, gross booking value totaled $17 billion, up 27% year-over-year, helped by higher average daily rates. Daily rates on Airbnb averaged $164, a 40% increase over the same period in 2019. This could offset any negative impact from the possible slowdown in bookings in the current quarter, but over the long term. , price increases could affect the growth of the company. Airbnb executives believe that if Europe and Asia continue to recover at the same pace, the two regions will more than offset losses in the United States. Europe continues to deal with the effects of the Russian-Ukrainian war and China’s travel industry is still recovering from the regional Covid-19. 19 epidemics that have slowed travel trends across Asia.

Despite the current macroeconomic challenges, Airbnb appears to be well positioned to meet strong travel demand with its wide range of vacation rentals around the world quickly adapting to changing consumer preferences. Since the company does not own or maintain property, its initial and ongoing capital expenditures are significantly lower than those of hotels. Airbnb’s one-time stays are also becoming a major growth driver, and long-term stays of 28 days or more remain its fastest-growing category, which is good news for investors.

There is currently no slowdown in travel demand or spending, but investors should ideally keep a close eye on these macro variables to gauge a measure of Airbnbs’ outlook over the coming quarters.

Take away

Airbnb’s fundamentals appear solid and the company is well positioned financially to weather a potential economic downturn. The company has emerged from the pandemic a stronger and better business, outpacing the broader travel industry by providing consumers with services that traditional hotel chains lack. From a price and earnings perspective, Airbnb has hardly been cheaper, so now is a good time for growing investors to consider adding the stock to their portfolios.

This article first appeared on GuruFocus.

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