Short-term rental/experience company Airbnbs (ABNB 0.32%) Expectations were high for 2022 as consumer demand for travel continues to mount. However, the company’s share price has nearly halved as it faces macro pressures such as deteriorating foreign exchange rates and declining consumer confidence, which could lead to lower earnings in the short term.
Despite these concerns, here are three reasons why there’s never been a better time to buy an Airbnb.
1. Airbnb is more popular than ever
With more demand for travel, more people working remotely, and guests wanting more space, Airbnb is more popular than ever. In Q3 2022, Airbnb customers booked 99.7 million stays and experiences, an increase of 25% compared to Q3 2021, generating $2.9 billion in revenue, an increase of 29 from Q3 2021 % increased.
For the fourth quarter of 2022, Airbnb management expects revenue between $1.8 billion and $1.88 billion. If these sales are realized, Airbnb’s annual revenue will be $8.29 billion to $8.35 billion, an increase of 38.2% to 39.2% compared to 2021.
Like many global companies, Airbnb faces foreign exchange rate issues, which negatively impacts revenue when weaker currencies need to be exchanged for stronger US dollars. Management claims that foreign exchange rates cost him more than $150 million in the company’s earnings alone in the most recent quarter.
Still, the fact that Airbnb continues to break guest records (90 million in its most recent quarter) proves the brand’s staying power even amid broader economic headwinds.
2. Valuation and profitability
Airbnb’s stock price has fallen nearly 50% over the past year, despite record earnings and improving financials. The company’s stock price looks cheap compared to historical price/earnings ratios (P/E), a common metric used to value public companies. Airbnb recently traded at a P/E ratio of around 35x. This is the lowest since going public two years ago.
You can’t have a P/E ratio without revenue, and Airbnb’s revenue is growing. The company recently produced its most profitable third quarter ever, with net income reaching his $1.2 billion. He’s also been net profitable in four of the last five quarters, proving that Airbnb is mature enough in its business model to be consistently profitable.
3. Balance sheet and share buybacks
Airbnb has a strong balance sheet with nearly $10 billion in cash and liquid assets and just $2 billion in long-term debt. Airbnb has already spent more than $1 billion in 2022 and continues to invest in product development, so it has a solid financial base that makes it difficult to get unfavorable loans at the current high interest rates. I don’t think so.
Another good thing about Airbnb’s big cash pile is that the company recently launched a $2 billion share buyback program to offset the dilution from its employee stock program. As a result, for the first time since Airbnb became a public company, it lowered its diluted shares outstanding for the third quarter of 2022 to about 680 million shares, down from his 684 million shares in the previous quarter. .
Investors generally like a company’s share buyback program to significantly reduce the number of outstanding shares, so the value per share increases over time. But at least Airbnb is aware of the growing number of shares and has an action plan to reverse the investor-unfriendly trend.
Is Airbnb a Stock to Buy Today?
With impressive revenue growth and profitability, Airbnb looks like an affordable growth stock after a pullback in 2022. Investors should monitor whether management can reach or exceed earnings guidance, continue to grow net income, and keep the number of shares outstanding low. If Airbnb succeeds in these areas, we expect the stock to recover from recent lows in 2023.