Airbnb (ABNB) is looking stronger operationally, but the price still implies growth expectations ahead. ABNB never felt the same downward pressure that many travel oriented stocks faced during the initial pandemic market crash, as it did after IPO in December 2020.
The high-growth expectations have been supported by strong Q1 2022 earnings. ABNB posted growth since its pre-pandemic values, and a positive EBITDA.
The current macro-environment of rising interest rates will put downward pressure on consumer discretionary spending.
I am moderately bullish on ABNB.
Is the Price Justified?
ABNB’s P/E of 75.6 implies the market sees net income growing substantially. Ratios that include net income can create large values for companies that have recently posted an accounting profit, like ABNB.
EBITDA generally provides a better indication of the underlying companies, as it removes some of the quirks of accounting that don’t always represent the operations clearly. ABNB has now posted a positive adjusted EBITDA for four consecutive quarters.
It should be noted the “adjusted” value adds back additional values where a standard EBITDA does not. In ABNB’s case, stock compensation is added back, ultimately pushing up the EBITDA value substantially. This is not unreasonable to value a company’s operations, but means potential dilution needs to be looked at.
Adjusted EBITDA on a trailing-12-month basis is $1,880 million. This results in an EV/EBITDA of 48.5, indicating the company is not as dependent on high growth values that the P/E indicates.
Low Risk of Dilution
ABNB has previously had notable stock compensation, not surprising considering the relatively recent IPO. For companies that have high implied growth it is always worth checking if operations are being funded by dilution.
The question is whether or not dilution is going to continue.
In Q4 2020, ABNB had a massive stock compensation expense of $2.9 billion, due to the shares being publicly listed, and sharply increasing in value. However, Q1 2022 had a significantly lower stock compensation expense of $195 million.
ABNB adopted a stock compensation plan in 2020 ending in 2030, which reserved 62 million additional shares for stock compensation. As of the end of 2021, 24.1 million options are outstanding, and 20.9 million are vested/exercisable. These values are significantly less than the previous year, meaning outstanding options are decreasing.
Degree of Growth: Past and Future
Comparing trailing-12-months Q1 2022 and Q1 2021, revenue grew by 36%. Revenue grew by 70% year-over-year, on a quarterly basis. Clearly ABNB is out of the pandemic rut.
Comparing Q1 2019 and Q1 2022, revenue has grown by 80%.
Another metric implying growth is unearned fees. Unearned fees are from bookings where ABNB’s obligations have not been completed.
Unearned fees grew by 93% quarter-over-quarter. Some of the change is due to seasonality, but unearned revenue also hit an all-time high of $1,747 million.
Management is predicting Q2 2022 revenue to be between $2.03 billion and $2.13 billion. Using the midpoint, revenue is expected to grow by 56% and 71% compared to Q2 2021 and Q2 2019. As well, the quarter-over-quarter growth is expected to be 38%.
If growth is able to remain this strong in the coming years, ABNB’s price is justified.
Post-Pandemic Conditions
The growth may be impeded as the fallout effects of the pandemic occur.
Interest rates are rising. As interest rates rise, consumer discretionary spending generally falls.
However, travelers are pent up after having limited ability to travel in the COVID-19 era. According to a September 2021 survey by Amadeus, 77% of travelers expect to travel within the next year. However, 35% still cite COVID-19 as a concern.
Inflation concerns have spiked, particularly fuel prices. Another survey conducted by Destination Analysts in April 2022, states 58% of Americans will reduce summer road trips if fuel prices stay high.
However, 60.6% have put a high priority on traveling within the next three months. For ABNB, this can be seen in heightened unearned fees.
Wall Street’s Take
Turning to Wall Street, ABNB earns a Moderate Buy rating, with 13 Buys, 16 Holds, and one Sell rating assigned over the past three months.
The average ABNB stock price forecast implies 30.6% upside potential.
Concluding Thoughts
ABNB has held up through the pandemic, and is fundamentally surpassing its pre-pandemic performance. Consumer desire to travel outweighs the inflationary pressures. I agree with Wall Street, and am bullish on ABNB.
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