What happened
Shares of Airbnb (ABNB -1.74%) fell 16.6% last week, according to data provided by S&P Global Market Intelligencefollowing the publication of the third quarter financial results of the leader in short-term rentals.
So what
Airbnb’s revenue jumped 29% year-over-year (YOY) to $2.9 billion. Excluding currency movements, the growth in sales of the rental real estate platform would have been even more impressive at 36%. Those results beat Wall Street estimates, which called for revenue of $2.8 billion.
The gains were fueled by a 25% increase in the number of room nights and experiences booked to 99.7 million. In turn, Airbnb’s gross booking value rose 31% to $15.6 billion.
The company’s profitability has also improved. Airbnb adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 32% to $1.5 billion and its net income jumped 46% to $1.2 billion, or $1.79 per share. That, too, beat analysts’ estimates, which had forecast earnings per share of $1.47.
Investors, however, seemed to be focused on Airbnb’s advice. Management expects revenue to grow 17% to 23% year-on-year to between $1.80 billion and $1.88 billion in the fourth quarter. Still, the company warned that growth in room nights and booked experiences could “moderate slightly” from the third quarter and currency movements could put pressure on its average daily rate in its international markets.
Now what
The Airbnb stock sale seems overdone. The recent strengthening of the US dollar against other currencies will likely reverse over time. Any reduction in the company’s international average daily rate should therefore prove to be temporary.
Additionally, Airbnb remains an incredibly profitable business with superb cash flow generation. It posted a net profit margin of 42% in the fourth quarter. And its $960 million of free cash flow over the past 12 months represents a margin of more than 40%. This essentially means that Airbnb converts every dollar of sale into an additional $0.40 that it can eventually use to reward shareholders with dividends and stock buybacks. That’s impressive – and rare – for such a young and rapidly growing company.
Joe Tenebruso has no position in the stocks mentioned. The Motley Fool holds posts and recommends Airbnb, Inc. The Motley Fool has a disclosure policy.
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