Airbnb ( ABNB 0.38% ) One of the major influencers of the mobile era has been a company that revolutionized the hotel and accommodation sector by creating a new form of temporary lodging.
Despite its significant presence in the accommodations sector, Airbnb has not consistently been successful in the stock market due to challenges posed by regulatory issues and increased competition from established online travel agencies. Booking Holdings is a company that specializes in assisting customers with making reservations for accommodations, flights, and other travel-related services. , as well as the unpredictability that comes with a cyclical sector such as the travel industry.
The vulnerability of the company was evident in its second-quarter financial results when the stock dropped by 17% in after-hours trading, hitting its lowest value in over a year. We will analyze the earnings report before explaining why the drop in stock price presents a favorable chance for investors to buy.
Credit for the image goes to Airbnb.
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The travel industry’s recovery is diminishing.
The strong growth in travel that Airbnb experienced recently appears to be slowing down. Competitors such as Booking have also seen a decrease in business. Airbnb, the top home-sharing platform, saw a revenue increase of 11% to $2.75 billion, which was its slowest growth in at least two years, even though it surpassed expectations slightly.
At the end of the day, there was a more conservative increase in growth. Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was lower. EBITDA Revenue increased by 9% to $894 million, however, net income decreased because of higher income taxes resulting from the release of a valuation allowance, an uptick in stock-based compensation, and elevated sales and marketing expenses that impacted profits. This was reported under generally accepted accounting principles (GAAP). GAAP On a per-share basis, the earnings decreased from $0.98 to $0.86, falling below the projected amount of $0.91.
The management also mentioned that the time between booking and travel was decreasing, indicating potential budget constraints and travelers becoming more discerning in choosing their trips. Additionally, the company highlighted a decrease in demand in the United States, which appeared to negatively impact the company’s stock performance.
In the third quarter, management projected a revenue increase of 8% to 10%, ranging from $3.67 billion to $3.73 billion, falling short of the estimated $3.84 billion. The company also indicated that EBITDA growth would remain unchanged as a result of ongoing investments in marketing.
If the decline in the stock price after regular trading hours continues, Airbnb’s stock will be priced at a historically low level. The market value of the company will have decreased to $70 billion, but its recent free cash flow amounted to $4.3 billion. Therefore, in terms of free cash flow, the stock is valued at a ratio of 16. Additionally, Airbnb generated $3.9 billion in EBITDA, resulting in an EBITDA ratio of 18, which appears to be a favorable valuation for a company with the growth prospects of Airbnb.
Airbnb is also repurchasing its own stock, a move that will become more feasible as the share price decreases, and will help boost per-share earnings.
The future appears promising.
Airbnb has significant room for growth in various countries such as Japan, Spain, and Italy. The company aims to increase its market presence in these countries to match the success it has achieved in more established markets like the United States, United Kingdom, France, Canada, and Australia.
Brian Chesky, the CEO of Airbnb, plans to grow the company’s operations by including new areas such as extended stays, services for guests, and services for hosts. He mentioned that the company will be launching new products related to these areas by 2025 during an earnings call.
Put simply, the potential market size for Airbnb is expected to grow substantially in the future.
Reasons to consider buying Airbnb
Even though Airbnb’s stock has decreased, the company’s strong advantages and potential for growth are still solid. The current stock price, with a free-cash-flow multiple of only 16, appears to be a good deal. Investors can expect sustained growth in the travel sector over the long term, particularly as demand for Airbnb’s services continues to increase.
