🏨 Can Airbnb Work Past Contradictions?

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🏨 Airbnb: Contradictions Much?

Homestays operator Airbnb Inc. (ABNB) expects to earn record revenue in the current quarter after its best-ever Q2 profit. However, its guidance left investors and analysts disappointed. The company has projected its first annual profit this year. Will the contradictions check Airbnb out before profitability arrives?

A Timely Pivot

Airbnb CEO Brian Chesky wants to nudge travelers to locations where it has supply, enabling growth without dramatically increasing supply. The company rebranded its app and website in May to categorize sites by types, making it easier for people to pick places they would otherwise not.

The company turned out to be a surprise winner during the pandemic, keeping itself afloat by tightening spending and becoming leaner and more focused. It paused non-core projects, cut a quarter of its staff, and slashed its hefty marketing budget. The increasing acceptance of remote work and the need to travel beyond crowded city centers has also aided demand.

Since going public in 2020, Airbnb has encountered a slew of headwinds, ranging from multiple waves of the pandemic, Russia’s attack on Ukraine, and now the lockdowns in China. The company eventually withdrew from the country as bookings remained below pre-pandemic levels. Despite the exit, Airbnb has a record 6M active listings currently.

The start of this year’s summer has been marred by chaos at airports, particularly in Europe. Flight delays in the US are also the highest on record as of July as carriers struggle to retain and hire employees. Airbnb witnessed more cancellations than expected in Q2, attributed to airlines canceling flights.

Airbnb returned to profitability in Q2, as people continued to book suburban rentals despite high inflation and the hosts raising prices. This is the first instance of the company reporting a profit in Q2 since it went public. Revenue came in on expected lines while EPS surpassed estimates.

Key Highlights From Q2:

  • Revenue: $2.10B Vs $2.11B expected
  • Earnings Per Share: $0.56 Vs $0.43 expected
  • Net Profit: $379M Vs Net Loss Of $68M YoY

The management is seeing signs of travel patterns returning to pre-pandemic seasonality. The stays of 28 days or more comprised 19% of the overall bookings in Q2 and remain the fastest growing segment.

Devil In The Detail?

Airbnb expects record revenue for the current quarter despite the forex headwinds, particularly the weakening of the Euro against the US Dollar. It expects to earn $2.78B – $2.88B in revenue this quarter, higher than the analyst expectation of $2.77B.

However, some pockets of concern are not visible at first glance in an otherwise strong quarter:

  • Firstly, the company booked a record number of nights and experiences during Q2, but the 103M number fell short of analyst estimates of 106.2M.
  • Gross Booking Value, at $17B, increased 27% from last year but is substantially lower than the 67% growth in Q1.
  • July-September is usually the busiest and most lucrative period for Airbnb, during which it has generally reported a profit. It also broke the single-day revenue record on July 4, indicating a strong summer season ahead. The management also said it is witnessing its strongest peak summer travel season yet. The company expects a record quarter but expects the value of bookings to remain flat in Q3 compared to Q2.
  • The management admitted that booking rates have slowed down in May and June compared to April. They also said that the company’s record revenue in Q3 will be courtesy price hikes and not business volumes.
  • The company’s free cash flow declined to $794M in Q2, from $1.2B in Q1.

The management is unperturbed on the inflation front, believing that it may be a blessing in disguise by pushing more people to turn to host once again. Travel remains the strongest in North America, while Europe lags due to weaker local currencies.

The company has $10B in cash, marketable securities, and long-term debt of just under $2B. It has announced a $2B share repurchase program to utilize the cash.

Analysts have trimmed their booking estimates to 101M for the current quarter from the earlier estimate of 109M. While they expect higher rates to offset the softness in bookings, at least for the current quarter, they warn of a risk of a further slowdown in demand amid a challenging economy. Some also believe business at hotel chains, and competitors like Expedia and Booking will return as corporate travel picks up.

Airbnb has never made an annual profit since its inception in 2008. It expects to have its first full-year profit in 2022. The company now finds itself in a catch-22 situation. On the one hand, it expects a record quarter; on the other hand, the street and investors are not very convinced. There may be rooms for a stay, but there certainly is no room for error!

Market Reaction
ABNB ended at $119.22, up 3.65%.

Company Snapshot 📈

ABNB 119.22 +4.20 (3.65%)

Analyst Ratings (38 Analysts) BUY 42%  HOLD 50%  SELL 8%

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Later Today 🕒

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  • Dominion Energy Inc. Earnings (D)
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  • 6:00 PM IST: Nonfarm Payrolls
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Today’s Fun Fact

The Nishiyama Onsen Keiunkan is the oldest hotel in the world, having its grand opening in 705 CE – more than 1300 years ago

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