Airbnb (ABNB -0.27%) delivered another round of strong growth on Tuesday night, beating estimates on the top and bottom results.
The home-sharing giant’s revenue rose 29%, or 36% in constant currency, to $2.9 billion, ahead of expectations at $2.84 billion. Ultimately, earnings per share jumped 47% to $1.79, beating consensus at $1.47.
Other key metrics, including nights booked and gross book value, were also impressive, but the stock still fell 6% in the after-hours session.
Investors appeared to balk at Airbnb’s Q4 guidance, even though it came in line with expectations. The company forecast revenue to grow between 17% and 23% in the fourth quarter (23% to 29% in constant currency) in a range of $1.8 billion to $1.88 billion, versus a consensus of 1 $.85 billion. It also provides adjusted EBITDA grow at the same rate or better.
Although this does not sound alarming, Airbnb is considered an expensive stock and its growth rate is clearly slowing down.
Image source: Airbnb.
Travel recovery is slowing
What’s clear from Airbnb’s results and forecasts is that the meteoric growth that began last year, when COVID vaccines became available and travel restrictions were lifted, is beginning to unfold. blur. Its third-quarter revenue growth rate was its slowest since the first quarter of 2021, and the fourth quarter will be even slower.
Investors shouldn’t be surprised by the slowdown. All the travel industry has exploded over the past year as the economy reopened, and those tailwinds would eventually fade, especially as recession fears sweep across much of the globe.
In this context, Airbnb’s deceleration does not seem particularly concerning. Rivals such as Reserve credits and Expedia have not yet announced their third quarter results, and their forecasts should be instructive for general travel trends. The two major online travel agencies are expected to expect a similar deceleration in the fourth quarter.
What this means for the growth story
Wall Street isn’t sure how to estimate Airbnb’s long-term growth rate. It’s a unique company with no real publicly traded counterpart, and it has steadily disrupted the travel industry since its inception in 2008. The company is entering an addressable market worth over $1 trillion, and there’s a lot of noise in the travel industry these days. around factors such as the pandemic, remote work and macroeconomics.
While analysts were disappointed with the company’s guidance for the fourth quarter, one data point shows why the company may be approaching a long-term growth rate. The forecast calls for revenue growth of between 62% and 70% from the fourth quarter of 2019, the last comparable period before the pandemic, which represents a compound annual growth rate of 18% over the last three years, slightly lower to that from one year to the next. provide.
If Airbnb was able to grow its revenue by 18% per year while weathering a global pandemic, it’s not unreasonable to expect that it could grow in the 10% or 20% range for the foreseeable future, especially given the tailwinds of remote working, long-term stays and stays in non-urban locations. Airbnb also said third-quarter supply growth accelerated to 15%, a sign that the platform continues to attract new hosts. Wall Street, meanwhile, is forecasting just 15% revenue growth next year, indicating that it expects growth to continue to slow.
What’s Missing on Wall Street
Analysts seem likely to lower their growth forecasts after the quarter, but even with modest growth, the stock offers good value. On a metric like price-to-sales ratio, Airbnb might be modestly expensive, trading at a multiple of 8, but the company has become very profitable, with wide margins in both GAAP net income and free cash flow.
The stock now trades at a price-to-earnings ratio of just 40 based on GAAP earnings, and just 20 based on earnings. free movement of capital of $3.3 billion. Those ratios are even lower when you take out the $7.6 billion of net cash he has on the balance sheet.
At this type of valuation, Airbnb only needs to generate modest growth to outperform, but the company has no intention of slowing down. On the earnings call, CEO Brian Chesky touted a product update coming later this month that will make it easier for hosts to start hosting on the platform and make pricing more transparent, a common complaint about the site.
As the travel market evolves, Airbnb will continue to gain market share from hotels and online travel agencies, and with a single-digit market share in the hospitality industry today, the company still has a long path of growth ahead of it.
Given its long-term potential, the stock’s sell-off on Q4 guidance seems short-sighted. Investors should take advantage of the buying opportunity.
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