Airbnb Plunges as Cautious Outlook Weighs on Sentiment

  • Stock Market Analysis
  • Airbnb shares plunged on Wednesday after providing soft guidance for this quarter.
  • Higher competition continues to hurt the company’s growth prospects.
  • The disappointing earnings report comes after Airbnb was a subject of a short report that fueled a stock selloff in April.

Airbnb (NASDAQ: ABNB ) shares fell sharply on Wednesday after the vacation home-rental business offered a weaker-than-expected forecast for the current quarter.

Investors are worried about the slowdown seen in the “Nights & Experiences” business segment, mostly driven by higher competition from Booking (NASDAQ: NASDAQ: BKNG ) which continues to gain market share.

Strong Travel Demand Fuels Q1 Beat

Airbnb reported earnings per share of 18 cents to top the analyst consensus for a profit of 9 cents. Adjusted Ebitda rose 14% year-over-year to $262 million, meeting the analyst consensus for $259.4 million.

The home-rental company’s revenue jumped 20% in the first quarter to $1.82 billion as the company continues to enjoy the boost from robust travel demand. Analysts were expecting sales of $1.79 billion.

“We had a strong start to 2023… We are now twice the size as we were before the pandemic on both a GBV and revenue basis—and with considerably higher profitability and cash flow,” the company said in a shareholder letter.

Airbnb said it experienced “a number of positive business trends,” mostly stemming from strong travel demand. Moreover, guests are traveling overseas and returning to cities while also using the Airbnb platform for longer stays.

Another positive is that supply growth continued to accelerate with an 18% increase YoY.

Gross booking value came in at $20.4 billion, rising 19% YoY to top the $20.1 billion expected. On a more negative note, Airbnb reported 121.1 million Nights and experiences booked, slightly below the expected 122.3 million.

As a result, the Gross booking value per night and experiences booked was almost flat YoY, $168.43 vs $164.50 expected.

Airbnb said its Board approved a new share repurchase authorization of up to $2.5 billion of Class A common stock.

Outlook Weighs on Stock Sentiment

On the outlook front, Airbnb said it expects to witness “another strong summer travel season.” The company sees Q2 revenue between $2.35 billion and $2.45 billion, with the midpoint of this guidance range coming in just below the $2.42 billion consensus.

The midpoint also implies a 31.8% quarter-over-quarter jump in sales. On a YoY basis, the shared outlook implies a growth of 14%. However, the outlook concerning the Q2 growth in Nights and Experiences Booked concerns investors.

“We expect year-over-year growth in Nights and Experiences Booked in Q2 2023 to be lower than our revenue growth during the quarter,” the company noted in a press release.

Similarly, the average daily rate (ADR) should also come in “slightly lower” in Q2 than in the year-ago period “driven by mix shifts and the introduction of new Host pricing tools as part of our 2023 Summer Release.”

The adjusted Ebitda is seen being at similar levels on a nominal basis, although lower on a margin basis. Conversely, another red flag is that Airbnb said it expects higher Sales and Marketing expenses this quarter.

“This anticipated year-over-year decline in Adjusted EBITDA margin is primarily driven by changes in the expected timing of our marketing spend relative to the prior year,” Airbnb clarified.

This cautious forward-looking commentary pushed shares lower as investors continue to be worried about Booking’s strong momentum. The combination of a slowing Nights & Experiences growth and higher marketing spending is weighing on margins. In March, the company laid off staff and cut costs in a bid to protect margins.

Furthermore, commentary about lower prices, as Airbnb is likely trying to spur demand and fight off Booking competition, is also not something that investors want to hear.

On a more positive note, the supply growth could be a sign that Airbnb’s efforts to improve bookings frequency are paying off.

Going forward, Airbnb said it is focused on three strategic priorities: 1) Make hosting mainstream; 2) Improve the core service; and 3) Expand beyond the core.

The company believes that it is “still under-penetrated in many markets.” As a result, it is increasing its activities towards less mature international markets. Airbnb said,

“[We] are seeing great results. Due to these efforts, Brazil and Germany have become two of our fastest growing markets and we’re excited to expand the playbook around the world,”

Bear Cave Report

Airbnb shares are up 48.6% through Tuesday's close. However, the stock is down since the year-to-date high was recorded in February, with the short report published in April as one of the key drivers of a selloff.

The Bear Cave, a newsletter published by Edwin Dorsey, published a piece last month that discussed unpleasant experiences that customers had during stays booked via Airbnb. The stock fell 6% on that day as investors digested the report. The report said,

“An investigation by The Bear Cave has uncovered that amid numerous scandals and horror stories, the Airbnb platform has shifted towards professionally managed properties, many of which are now gearing to directly compete against the company,”

Sell-side analysts from Bernstein, led by Richard Clarke, defended the short-term rental platform. Clarke wrote about Dorsey’s comments on Airbnb experiencing stronger competition from professionally managed properties:

“Everything on Amazon (NASDAQ: AMZN ) is pretty much purchasable another way, but that does not make it a less valuable platform,"

***

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

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