Airbnb (ABNB), a leading vacation portal that enables hosts to offer stays and experiences to guests worldwide, is about to enter its busiest season: summer. With leisure travel on the rise once again, Airbnb could benefit from all the vacationers who are making up for the lost time by traveling during what was once considered a slow season.
It's been a brutal year for investors, with almost every asset class falling considerably, leaving few places to hide from the markets. Shares of Airbnb have recently been down 53% from their 52-week high, as we have entered a bear market, but the company is not performing poorly. In the latest earnings report, Airbnb posted revenue of $1.5 billion for the first quarter, up 70% from the previous year, and free cash flow doubled to $1.2 billion, approximately. The company also announced its commitment to continuous innovation, releasing new features and improving how customers interact with the platform.
Asset-light business model
Before we jump into the financials, let’s take a deeper look at the company's underlying business model. Airbnb operates on a ‘asset-light’ business model which has become an essential tool for fueling growth and adjusting to market demand. The platform encourages hosts to register their homes on Airbnb's site. So when a guest books a home, Airbnb hosts the transaction and takes a percentage for its services instead of owning the actual properties.
Flexibility at the time of high and low demand is a strength of this strategy, because it gives the company the chance to adjust its operations and reduce them when demand is low, like during the recent pandemic. This isn't as easy for traditional hotel companies that don't have this same flexibility. What's more, unlike traditional hotel or resort businesses, in periods of high demand, Airbnb does not need to invest significantly in building rooms to take advantage of growth.
The Numbers
Despite the rest of the travel industry slowly recovering from COVID-19, Airbnb experienced accelerated recovery from the effects of pandemic lockdowns, with revenue growing nearly 300% from the previous year and has increased by 67%, 78%, and 70% in each of the following three quarters1. Airbnb also reported booking 102.1 million2 nights and experiences, surpassing pre-pandemic levels and saw its cash flow from operations climb to $1.2 billion in the most recent quarter, up from $618 million the previous year. To top it off, Airbnb's net loss of $19 million in the last quarter is a drop from $1.2 billion a year ago, when travel was on pause.
Airbnb is growing rapidly, with revenues jumping every quarter. If its growth continues at the same pace it has seen recently, cash from operations could continue to surge. Additionally, travelers are booking trips earlier. At the end of April, the company had 30% more nights booked for the summer travel season, similar to pre-pandemic levels2. As a result, Airbnb's growth would most likely continue to grow at a healthy pace in the near future, owing to the fact that industry demand is recovering from pre-pandemic drops.
Looking ahead,Airbnb anticipates revenues between $2.03 billion and $2.13 billion3 in the second quarter, which would represent 52% annualized growth over the first quarter. Furthermore, analysts have set a median target of $179 for the company's share price, expecting lows and highs of $95 and $250, respectively. The median target is +79.8% higher than the current share price of $99.53.
Strong Summer Demand
Seasonality plays a significant role in influencing the stock price of Airbnb. As mentioned, summer is a busy period for Airbnb because people will travel all over the place. Despite an increase in news about variants, rising airfares, and hotel rates, travel interest in the US is equivalent to what it was before the pandemic—46% of Americans are planning a trip involving stays in hotels or other types of paid lodging, according to Deloitte4.Furthermore, the World Travel & Tourism Council (WTTC) has predicted that travel and tourism will increase by 6.2% this summer in the US. This rise is expected to generate over $2 trillion of U.S. economic output, or approximately 6% of total U.S. output, a significant increase from pre-pandemic levels.
However, Airbnb's business is not without its challenges and risks; unlike its competitors, the travel facilitator has varying consistent quality, making it hard to match consumers' expectations. But above all, Airbnb seems poised to capture a meaningful share of the travel market based on the company’s financial forecast.
1 https://news.airbnb.com/airbnb-second-quarter-2021-financial-results
2 https://news.airbnb.com/airbnb-first-quarter-2022-financial-results
3 https://www.cnbc.com/2022/05/03/airbnb-abnb-earnings-q1-2022.html
4 https://www2.deloitte.com/us/en/insights/focus/transportation/summer-travel-survey-predictions.html
Baraka is regulated by the DFSA. Past performance is no guarantee of future results. Your investment can fluctuate, so you may get back less than you invested. Consider each product’s risk(s) before investing. Baraka is not a financial adviser and therefore does not provide financial advice. Our content is informational only.
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