There’s no question that when we talk about a category-defining leader in the travel industry, and the home-sharing market in particular, Airbnb (ABNB) is often the name that comes to mind. But the company hasn’t been immune to the plight of the overall industry which, in many ways, is still recovering from the pandemic.
Airbnb stock has fallen 26% over the past six months, compared to 9% decline for the S&P 500 index. And on a year-to-date basis, the stock has suffered a 33% decline, while the S&P 500 has fallen 20%. The stock’s struggles underscores the level of destruction the pandemic has caused. But ahead of its third quarter fiscal 2022 earnings results due out after the closing bell Tuesday, ABNB stock looks like a bargain.
Despite the decline in share price, Airbnb's flexible business model puts it in a unique position to capitalize on the network effect where platform users on both sides of the transaction (host and guest) attract each other to the site. Airbnb generates 90% of its traffic from the direct or unpaid channels. That means 90% of the time, customers go straight to its platform to book a reservation. Aside from several powerful economic moats, the company's global brand recognition gives it the sort of pricing power that’s tough to compete with.
Currently, the company’s gross bookings metric, which is often an early indicator for future revenues, is the main driver of the stock. Gross bookings is the dollar value of bookings on the platform. It includes the portion paid to the host as well as service fees, cleaning fees, and taxes, net of cancellations and alterations. If Airbnb can produce better-than 20% bookings growth for the just-ended quarter, its shares are poised to rebound toward the $150 level.
For the three months that ended September, Wall Street analysts expect the San Francisco, Calif.-based company to earn $1.55 per share on revenue of $2.85 billion. This compares to the previous quarter when earnings were $1.22 per share on revenue of $2.24 billion. For the full year, ending December, earnings are expected to be $2.23 per share, up from a year-ago loss of 57 cents, while full year revenue of $8.28 billion would rise 38.2% year over year.
The fact that full-year revenue is projected to grow at close to 40% underscores the quality of Airbnb's global brand and its unique value proposition. According AirDNA data, Airbnb active listings in September were 6.2 million with growth accelerating to north of 16% year over year, compared to a 14% rise in August. This trend sets up for the company to potentially deliver strong Q3 results as well as strong forward guidance on Tuesday which would send the the stock higher.
In the second quarter, revenue surged 58% year over year to $2.1 billion. This growth was driven by increases in per Night bookings and Experiences which rose to 103.7 million, up 25% year over year. During the quarter, gross bookings volume came in at $17 billion, marking an increase of 27% year over year. The company noted that the bookings volume, which was driven by higher average daily rates, would have grown 34% had it not been for foreign exchange impacts.
Meanwhile, thanks to a net profit margin improvement of 18%, up from -5% Q2 2021, Q2 net income came in at $379 million. The company continues to benefit from revenue growth and strong expense controls. On Tuesday, however, investors will want to hear continued confidence from management about the prospects of the travel industry and how Airbnb plans to capitalize on e-travel for years to come.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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