Why Airbnb (ABNB) seems poised to bounce back

IIt’s easy to argue, as so many others have done in recent years, that the market’s recent love affair with growth has become a bit overheated. This has led to a massive sell-off in many of the top tech companies that have upped the load, but it doesn’t change the basic rationale for owning these stocks: these are companies that invest in their futures and have the ability to turn the tap into profit when it suits them. The classic historical example of this approach would be Amazon (AMZN), which has been criticized for years for failing to turn its large and growing revenues into profits. This review seemed reasonable for a while, but now seems ludicrous that it’s clear what they were doing was establishing market dominance so strong that it ensured future profitability on a large scale, even in a marketplace. competitive.

This same criticism that not thinking small is a mistake is currently being used against Airbnb (ABNB), and it is as wrong here as it is against Amazon.

That said, the primary purpose of a for-profit corporation is to make money, and putting a premium on the shares of companies that don’t is always a risky business. What is different in the case of an Amazon or an Airbnb is the timescale on which they operate. Meeting rooms and C-suites in America are frequently criticized for taking a short-term, next-quarter-focused view, and yet, when a business looks decades into the future and invests in that spirit, its actions are often punished. This kind of punishment is usually as short as the state of mind that prompts it, and investing in growth pays off pretty quickly.

Looking to the future is what Airbnb has done recently. For obvious reasons, the pandemic has hit them hard. After we all became germaphobes a year ago and convinced ourselves that the coronavirus lived on surfaces for days, just waiting to infect us, who wanted to go stay with a stranger for a week or two? But just as Amazon faced the sinking of technology early in its life and the Great Recession, it ultimately emerged stronger of the two. Airbnb’s survival in the pandemic will leave them leaner, fitter, and better equipped for the future ultimately.

Their earnings report last week made it clear that they were working towards this end. On the surface, it looked pretty ugly. The losses were much larger than expected at $ 1.95 per share, which for many overshadowed the good news of stronger-than-expected income growth. When you examine the reasons for this discrepancy, this earnings report should actually encourage those looking for growth.

It might seem a little odd when much of the loss has been attributed to “restructuring costs,” which means boards are talking about layoffs, but as most of the big tech companies have it, discovered at any given time, overstaffing is often more of a barrier to long-term growth than understaffing. Airbnb has been forced into cuts by the pandemic, but that will likely turn out to be a good thing. It took an early, brutal assessment of effectiveness that will have hurt, I’m sure, but will leave them much better placed for growth from now on.

The same can be said of the other cited reason for big losses on big incomes: debt repayment. Airbnb has taken out loans available to weather the pandemic, and it’s probably tempting to massage the numbers by keeping that debt on the books. However, once the existential threat has passed, it makes sense to reduce short-term profits that will enable growth-oriented borrowing in the future, rather than delaying the inevitable in the name of better EPS.

Besides paying down debt and getting laid off, Airbnb’s top expenses in the last quarter were investments in their tenants or hosts. It is the equivalent of most companies investing in improving their supply chain and has the added benefit of creating barriers to growth and entry for competitors and new entrants on the market. Marlet. Cutting costs by downsizing and paying off debt will allow more to be done in the future, and that can’t be a bad thing.

Over the past couple of months we’ve seen the market as a whole go through a massive “buy the rumor, sell the fact” model. Stock prices rose sharply in the second half of last year as hope for vaccines grew, but have plummeted now that they’re here, and some sort of normalcy is returning to the United States. This has played out in an exaggerated manner in the Covid-sensitive ABNB stock but now that it is clear that they will come out not only alive but also focused on future growth, we can expect a turnaround in the stock. It might not come right away, but as the stock nears its low of $ 121.50, it deserves the attention of investors with a longer view.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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