Use the Airbnb stock implosion to your advantage

Shares of digital lodging platform Airbnb (NASDAQ: ABNB) plunged on its Q3 2022 earnings release as forecasts were lukewarm. The company was “born” in 2007, as a digital home booking and rental platform connecting hosts with guests to rent their property for days or weeks at a time. It is an asset-light business model very similar to Uber (NYSE: UBER), Door Dash (NYSE: DASH) and Lyft (NASDAQ: LYFT) where Airbnb acts as an intermediary connecting the two parties and taking a commission on the transaction. . Unlike Uber and LYFT, Airbnb is actually profitable on a GAAP basis. It joins the ranks of other travel hosting services, including Booking.com (NASDAQ: BKNG), Expedia (NYSE: EXPE) and TripAdvisor (NASDAQ: TRIP). Airbnb has made an astonishing recovery in black and GAAP form since 2021. The company felt the sting of a strong US dollar, but still remained firmly profitable. However, the impacts of the US dollar should continue to be a headwind in the short term with impacts on its ADR from the fourth quarter. So far, the effects of higher inflation and lower discretionary consumer spending have not impacted earnings.

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Recessions Drive New Host Growth

Airbnb was born during the housing bubble of 2007. The company noted that its new hosts on Airbnb were growing rapidly, much like during the 2008 recession, as landlords became increasingly hungry for additional income. Importantly, its hosting offering increases during economic downturns, which means more inventory at virtually no cost to the company. Airbnb is rolling out an "all-new, super-easy way for millions of people to Airbnb their homes" in a Winter 2022 release.

A look at the numbers

On November 1, 2022, Airbnb released its fiscal third quarter 2022 results for the quarter ending September 2022. The company reported GAAP earnings per share (EPS) of $1.79 excluding one-time items compared to at consensus analyst estimates for earnings of $1.50, beating estimates of $0.29. Net income of $1.2 billion improved 31% year-on-year with a margin of 42% from 37%. Revenue rose 28.9% year-over-year (YOY) to $2.88 billion, beating analyst estimates of $2.85 billion. Booked room nights and experiences increased 25% year-on-year to 100 million. Gross booking value (GBV) reached $15.6 billion, up 31% year-on-year. Adjusted EBITDA increased 32% year-on-year to $1.5 billion.

A sign of normalization to come?

Airbnb noted that a month into its current Q4 2022, the company has seen a stabilization in cancellations, renewed interest in city stays, and a large backlog of future bookings. They provided Q4 2022 revenue forecasts of $1.80 billion to $1.88 billion versus analysts' consensus estimate of $1.86 billion. Nights and Experiences reported "slightly moderate" growth from the third quarter. This is the part that spooked investors and caused stocks to crash post-market.

Are investors paranoid?

Although this was a record quarter, investors fear that the good times are already turning. The slight slowdown in bookings using the phrase “moderate slightly from the third quarter” spooked investors who took it as a sign that the next quarter could be the tipping point for triggering normalization. However, Airbnb says it is facing difficult year-over-year comparisons for the fourth quarter, and they haven't noticed any...