Airbnb is down on its latest report, but investors are missing the forest for the trees.
Airbnb‘s (ABNB -0.50%) first-quarter earnings report was fresh off the press on May 8. Despite solid beats on the top and bottom lines, investors sold the stock the following day as second-quarter guidance came up short. Shares lost 7%, a significant one-day sell-off for the travel leader.
Revenue increased 18% year over year to $2.14 billion last quarter, ahead of the $2.06 billion consensus, while earnings per share more than doubled from $0.18 to $0.41, far exceeding the analyst estimate of $0.24. The surge in profit margins was due in part to a shift in the Easter holiday to the first quarter, strong interest income, and leverage from its revenue growth and cost discipline.
While those results should’ve pleased the market, investors instead focused on the second-quarter guidance, which called for revenue growth to slow to 8% to 10% as the shift in Easter turns into a headwind. That slowdown seems to be temporary, though, as management said revenue growth would accelerate in the third quarter as the company benefits from events like the Summer Olympics and the Euro Cup.
The stock is now down 13% from its year-to-date peak and at its lowest point in close to three months. That sets up an appealing buying opportunity as Airbnb still has a long growth path in front of it.
Let’s take a look at a few reasons to buy the dip in Airbnb stock.
Image source: Airbnb.
Airbnb is gaining market share
Airbnb competes with hotels and other types of overnight accommodations, but its closest competitors are other home-sharing platforms like Expedia‘s VRBO.
But Airbnb already dominates the home-sharing niche with a leading market share among those platforms, and the company appeared to strengthen its position in the first quarter. Revenue at Expedia increased 8% in the period, while its B2C division that includes VRBO was up just 3%. Overall lodging gross booking rose 4%. Expedia doesn’t break out VRBO results, but it noted headwinds with the replatforming of VRBO as it shifts the brand under the Expedia umbrella where users will be able to take advantage of Expedia Rewards.
Competitors have been unable to overcome the powerful network effect present on Airbnb’s platform, allowing it to continue growing its lead.
The platform gets creative with Icons
In its summer update, Airbnb introduced one of its most original ideas yet, which it’s calling Icons. The company is giving travelers the opportunity to stay in iconic places around the world and have truly unique experiences like a night at the Musee d’Orsay in Paris, or a stay in the house from Pixar’s hit movie Up.
Icons are yet another way that Airbnb is differentiating itself from hotels and other home-sharing platforms. These aspirational experiences will elevate and reinforce Airbnb’s brand in travel and create buzz around its unique offerings.
As CEO Brian Chesky has said, Airbnb is committed to expanding beyond the core business, so investors should expect more of these new features in the future.
Making smart financial decisions
Airbnb is a growth stock, but after being chastened by the pandemic, management runs the business much more conservatively than many of its Silicon Valley peers, and is making prudent financial decisions and controlling spending.
The company continues to return capital to shareholders, buying back $750 million in stock last quarter. With $2.5 billion in total share repurchases over the past year, Airbnb has reduced its shares outstanding nearly 3% over that period. While 3% might not sound like much, this strategy compounds over time, and Airbnb should be able to increase buybacks as profits grow.
Additionally, the company is benefiting from higher interest rates as it’s on track to generate close to $1 billion in interest income this year, giving it a significant boost on the bottom line.
This top growth stock is executing as a business and taking advantage of its superior financial position, and that will reward investors over the long term.