A couple of days ago, I wrote about Airbnb (ABNB), saying that I would be buying the stock in front of their earnings report, which I said would be one of the more interesting things to look forward to this week. That turned out to be more or less true, although buying the stock in front of that release, which I did, is not looking like a great decision right now. As I write, ABNB is trading nearly 4% below yesterday’s close, and that is after a significant bounce, having been down around twice that immediately following the release. Clearly, I got that one wrong and lost money, so why am I talking about this?
Two reasons.
First, I learned a long time ago that admitting and dealing with mistakes is something that all successful traders do. My time in dealing rooms around the world taught me a lot of things, but the lesson for which I am most grateful is one that most people don’t associate with Wall Street, The City, or any financial center: humility. I get it; anyone who has seen “The Wolf of Wall Street” or is familiar with Gordon Gekko from “Wall Street” will find that hard to believe. Many movies, books, TV shows, etc, depict traders and brokers as being about as far removed from humility as one can possibly imagine.
That isn’t without some basis in fact. I can only refer to my time in the market, but during that time, there was definitely some truth to the trading stereotype of a loud, obnoxious (usually white) guy with a stunning sense of entitlement; someone utterly convinced of their own superiority over almost everyone else in the world. Those people existed and were highly visible, but they usually weren’t the ones who lasted any length of time in the job. Or, if they did, it was because they approached the job of trading without that particular arrogance.
Understanding that you will inevitably be wrong on a good percentage of your trades, and recognizing the times when you are, is essential to survival in a dealing room. It prevents you from digging yourself an even deeper hole when you mess up by refusing to admit a mistake and averaging into a losing position. Doing that can quickly turn a routine small loss into enough of a problem that it threatens at least your bonus check, maybe even your job.
That brings us to the second reason why I am breaking what others seem to regard as the first rule of punditry by reminding readers of a bad call: Doing this enables me to look dispassionately at what I got wrong and assess what is likely to happen next. In this case, what I got wrong was not really ABNB’s earnings, but rather the market reaction to them.
The company actually beat expectations on an adjusted basis and did so on higher than expected revenue. They also gave upbeat guidance for Q1, with a revenue range above Wall Street’s current assumption and announced some share buybacks. That is pretty much what I anticipated, but this was a rare case where traders looked more at the unadjusted number than the adjusted. Usually, one-off items are regarded as just that -- one-offs -- but the tax adjustment reported by Airbnb for last quarter suggests they may be rethinking the way they report and deal with tax liabilities in some countries. If that is the case, then a downward adjustment to expectations is coming.
Still, the move down in ABNB looks like a big overreaction, even after retracing half of the losses in premarket trading. The fact is they are growing both hosts and guests faster than anticipated and, if we forget the tax thing for the moment, turning a profit as they do so.
Yes, “the tax thing” shouldn’t be dismissed so easily. If tax liabilities have been underestimated in the past, then future margins will inevitably fall, but the company is fully aware of that and yet still gave upbeat guidance.
So, while I am all too aware of the danger of being stubborn and arrogant to believe I am right and the rest of the world is wrong, in this case, I have not cut my position completely as I usually would. Instead, I have trimmed it to a size better suited to long-term holding and will watch what happens to the stock over the next couple of weeks. That will, to some extent, depend on how the market processes the CPI data from yesterday and the impact that has on the market overall but, all things being equal, I believe it is reasonable to expect ABNB to bounce back during that time.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
Read Martin's Bio