Why Airbnb Stock Jumped 25% in July

What happened

Shares of Airbnb (ABNB 0.93%) the stock soared 25% in July, according to data provided by S&P Global Market Intelligence. The powerful travel company reported no major news in July, but lifted along with the broader market as spending remained strong. Investors may have seen the huge drop in its share price as an opportunity given the company’s strong performance. The stock may also have risen as the market was anticipating a strong second-quarter earnings report, which actually came out yesterday.

So what

Airbnb has recovered significantly from the pandemic-induced declines and has posted several (non-consecutive) quarters of net profits. It’s no longer a cash-bleeding tech upstart, but rather an efficient, revenue-generating travel disruptor.

In the second quarter, revenue grew 58% year over year to $2.1 billion. Airbnb reported net income of $379 million, the company’s first-ever second-quarter profit. At a time when inflation is pushing customers to cut spending in certain areas, but people are still eager to get back to traveling after long periods of travel restrictions, Airbnb is benefiting from the rebound in travel. It is well equipped to cope with high demand with a wide assortment of global vacation rentals catering to different criteria. Although urban stays returned for the second consecutive quarter, non-urban listings increased by 50%. Long term stays, or those 28 days or more, continue to be the responsibility of the company fastest growing category. These trends indicate that Airbnb is far from a typical travel agency and that there are all kinds of growth opportunities that traditional companies travel agencies cannot match.

Airbnb shares plunged with the wider market earlier this year, despite the company producing large numbers over several quarters. Its pricey valuation was a liability in a market that was beginning to shift from highly-rated tech stocks and into safe stocks. The S&P 500 rose 9% in July and investors recognize Airbnb’s opportunity.

Now what

Airbnb stock is still down 30% this year. The shares are trading at 43 times forward earnings over a year, which is still expensive, but well below the multiple of more than 150 times forward earnings it was showing just a few months ago.

Management gave a lukewarm outlook for the third quarter, although July 4 was its highest revenue day on record. It expects booked nights and experiences to remain at around 25% year-over-year growth, similar to the second quarter. Revenue is expected to increase by 24% to 29%. Still, Airbnb’s stock price rose nearly 5% after the earnings report.

Airbnb has a ton of potential as it identifies new areas of growth and moves to meet demand. Having started showing profits and falling valuation, it looks more compelling.

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