Airbnb: A+ Performance – Charge ABNB Stock Below $100
We think analysts were too worried about Airbnb (NASDAQ: ABNB) QoQ gross reservation value reportedly lower by $17 billion in FQ2’22 compared to $17.2 billion in FQ1’22, as these numbers represent a massive growth of 34% over one year from $13.4 billion in FQ2’21 (e.g. FX). The company also reported an impressive 103.7M nights and experiences booked and an excellent average daily rate of $164 in the last quarter, up from $102.1M/$168 at FQ1’22&83, 1M/$161 at FQ2’21, respectively. Additionally, ABNB continued to show improved ADRs compared to the hotel segment in the US, with the latter posting an average ADR of $151.61 in Q2’22.
While deteriorating macroeconomic conditions and Fed interest rate hikes through 2023 may provide temporary headwinds for ABNB’s near-term performance, we believe that most of the change in behavior consumers from established hotels to vacation rentals is here to stay. The company’s flexible and unconventional stay offerings will prove to be a winning strategy over the coming quarters, particularly as professional remote work opportunities in North America increase by 4% from pre- pandemics to 25% by the end of 2022.
Consequently, given the steady return of international travel to 70.8% of pre-pandemic levels and the 24% year-on-year growth in demand for long stays of 28 days or more in the second quarter of 2022 , we believe that ABNB is well positioned for future growth. , due to its unique positioning in the global travel industry. The global leisure travel market is also expected to grow decently, growing from $4.4 billion in 2021 to $6.34 billion in 2026, at a CAGR of 5.7%. IATA Director General Willie Walsh said:
The demand for air transport remains strong. After two years of border closures and restrictions, people are enjoying the freedom to travel wherever they can. (IATA)
ABNB management proved to be very competent – triggering an expansion of profit margins
In the second quarter of 2022, ABNB recorded excellent revenues of $2.1 billion and gross margins of 81.5%, representing annual growth of 56.7% and 3.6 percentage points, respectively. This, in turn, improved its profitability, with net income of $0.38 billion and net profit margins of 18% last quarter. This indicates a considerable increase of 728.5% and 23.1 percentage points year-on-year, respectively.
ABNB management has been cautious in expanding its operations, given the minimal 13% year-on-year increase in operating expenses to $998.3m. As a result, further contributing to the reduction in its operating expense to sales growth ratio, to 47.4% of revenue and 58.2% of gross profit in FQ2’22, from 66.2%/ 84.9% in FQ2’21 and 144%/277.7% in FQ2’20. Hence, demonstrating exceptional cost management, resulting in impressive expansion of margins and profitability.
It is evident that the remote working strategy employed by ABNB has helped reduce its overhead, with the company reporting a reduction in PPE net assets of $282.7 million and capital expenditure of $5.1 billion. dollars during the second quarter of 2022. It indicated a notable moderation in spending of -41.3% and -33.7% year-on-year. Additionally, investors need not worry about its $1.98 billion in long-term debt and $5.1 million in interest charges in the last quarter, as these would only mature in 2026.
In the second quarter of 2022, ABNB also reported strong free cash flow (FCF) generation of $0.79 billion and an FCF margin of 37.8%, representing a decline of -20.8% year-on-year. Nevertheless, its impressive cash and cash equivalents of $15.24 billion should assure investors of its medium-term liquidity. Even after adjusting for $2 billion in unearned fees and deducting $7.5 billion held on behalf of guests, the company still reports an excellent adjustment. cash of $9.74 billion on its balance sheet for the last quarter. Demonstrating its ability to meet its financial obligations by 2026.
With this splendid liquidity, it’s no wonder that ABNB finally announced an excellent $2 billion buyback program on its last earnings call. This would help counter the significant stock dilution of 97.6% since the company’s IPO in December 2020 and substantial stock compensation of $878.52 million over the past twelve months. Assuming current stock prices, the sum would equate to a -2.7% reduction in the number of shares, then triggering a decent increase in shareholder value.
ABNB will report long-term growth deceleration and post-pandemic momentum
Over the next five years, ABNB is expected to experience revenue growth at a CAGR of 19.78%, while finally posting profitability in net income from fiscal year 2022. This is an impressive development, given projected net profit margins of 22.7% in fiscal 2022 and 22.1% in fiscal 2026, compared to -5.9% in fiscal 2021 and -14% in fiscal year 2019. These numbers unfortunately represent a notable moderation of -9.9% in consensus estimates since June 2022, indicating slower growth for ABNB to come, after revenge trips during the reopening cadence . However, it is important to note that no company is able to sustain the hypergrowth seen during the peak levels of the pandemic, given the obvious once-in-a-lifetime outbreak.
For fiscal year 2022, consensus estimates that ABNB will report revenue of $8.29 billion and net revenue of $1.89 billion, representing remarkable annual growth of 38.3% and 640%, respectively. Management also guided FQ3’22 revenue between $2.78 billion and $2.88 billion, representing an increase of 37.1% QoQ and 29.1% YoY. It is therefore evident that the company will experience exemplary growth over the next two quarters, as analysts have also raised its profitability by 11.1% compared to previous estimates. Thereby, potentially triggering further increases in ABNB’s stock performance to come, after hitting a new low in September.
In the meantime, we encourage you to read our previous article on ABNB which would help you better understand its market position and opportunities.
- Airbnb: Monster Quarters in Q2 and Q3 2022 – Buy Now on Weakness
So is ABNB Stock a buySell or Keep?
ABNB 2Y EV/Revenue and P/E Valuations
ABNB is currently trading at an EV/NTM Revenue of 7.45x and a P/E NTM of 42.60x, below its 2-year EV/Revenue average of 15.09x, although it has improved significantly from to its 2-year P/E average of -70.07x. The stock is also trading at $113.64, down 46.5% from its 52-week high of $212.58, but with a 31% premium to its 52-week low. at $86.71.
ABNB 2Y stock price
Consensus estimates remain bullish on ABNB’s outlook, given their price target of $133.68 and a 17.63% upside from current prices. Nonetheless, it is also evident that the stock is currently trading at a slight premium, above its 50-day moving average of $108.06. In addition, we could speculatively see a more attractive entry point below $100 ahead of the next Fed interest rate hike on September 20, 2022. This equity price weakness is already evident in the recent -3.5% plunge, following Powell’s hawkish comment on Aug. 26, 2022, as well as the current sideways movement since then.
Keen investors should load the boat to the next bottom.