Airbnb, STUNNING earnings result(Q4'2022)! But what are the risks?
Airbnb $Airbnb(ABNB.US$ just released its Q4'2022 earnings result and the beat both bottom line (by 40%+) and top line. Airbnb is probably the very few tech companies in the bay area that are still hiring and expanding its headcount. What's so special about Airbnb?
Airbnb underperformed Nasdaq in the past year but the stock has done really well starting 2023
The story of Airbnb started in May, 2020. Due to the lockdowns during pandemic, Airbnb’s business sank so hard and the company had to lay off 25% of its workforce. It was the darkest moment in company's history because no one was certain about when the pandemic would end. Under Brian Chesky's great leadership, the company magically survived the downturn and thrived from the bottom.
In Q1’2021, its net income loss was over $1.2B and six quarters later, Airbnb recorded positive of $1.2B in net income. On average, the company generates between $400m to $1.2B of free cash flow. It went from almost went out of business to free cash flow generator in a span of one year! Its EBITDA margin also improved significantly from negative 30% in Q1'2019 to 51% in Q3'2022, which is record high in company's history. COVID lay-offs really put the company in check by over expanding and hiring like other tech did. Now the trend is reversing 180, others are cutting off headcount and they are hiring due to all the macro headwinds everyone is facing.
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So everything sounds just about right for Airbnb, what are the risks the company faces in the company year? Deteriorating ADR (Average Daily Rates). ADRs are dropping across the board including Airbnb and Verbo, Expedia $Expedia(EXPE.US$ owned specialized lodging. There are a couple of reasons behind: 1. Competition from landlords. 2. Consumer mix is changing towards more global due to reopening across the globe. The boom of Airbnb has made more property owners turning into Airbnb hosts, which increases competition and reduces ADRs in the area. U.S. has the highest ADR and the market is not growing as fast as others, ADR will naturally head lower. The company is expecting a YoY decrease in ADR but to offset the impact on margin, management is watching carefully on its spending such as headcounts and some variable costs including advertising.
In summary, Airbnb is a great turn-around story under the co-founder, Brian Chesky's leadership. It now generates so much cash that capital allocation becomes question for the management. For what I can see, the largest risk to the company is still a global recession which will put further pressure on ADR and nights booking. On the bright side, the company is bored out of the GFC crisis which demonstrate the resiliency to future downturns.
Disclosure: The author owns ABNB at the time of this writing and this is not financial advice
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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