Airbnb's (NASDAQ:ABNB) Q1 Sales Top Estimates But Stock Drops

Full Report / May 08, 2024

Online accommodations platform Airbnb (NASDAQ:ABNB) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue up 17.8% year on year to $2.14 billion. On the other hand, next quarter's revenue guidance of $2.71 billion was less impressive, coming in 1.1% below analysts' estimates. It made a GAAP profit of $0.41 per share, improving from its profit of $0.17 per share in the same quarter last year.

Airbnb (ABNB) Q1 CY2024 Highlights:

  • Revenue: $2.14 billion vs analyst estimates of $2.06 billion (3.9% beat)
  • Adjusted EBITDA: $424 million vs analyst estimates of $326 million (large beat)
  • EPS: $0.41 vs analyst estimates of $0.23 ($0.18 beat)
  • Revenue Guidance for Q2 CY2024 is $2.71 billion at the midpoint, below analyst estimates of $2.74 billion (guidance for adjusted EBITDA margin in Q2 224 to be down year on year compared to Q2 of 223)
  • Gross Margin (GAAP): 77.6%, up from 76.5% in the same quarter last year
  • Free Cash Flow of $1.9 billion, up from $46 million in the previous quarter
  • Nights and Experiences Booked: 132.6 million, up 11.5 million year on year
  • Market Capitalization: $101.5 billion

Founded by Joe Gebbia and Brian Chesky by renting out a blowup bed on the floor of their San Francisco apartment, Airbnb (NASDAQ:ABNB) is the world’s largest online marketplace for lodging, primarily homestays.

Airbnb was founded on the premise that the travel industry had become commoditized into offering standardized accommodations in crowded hotel districts around landmarks and attractions. Their view was that a one-size-fits-all approach limited how much of the world a person could access, leaving guests feeling like outsiders in the places they visit. Airbnb enabled home sharing at a global scale and created a new category of travel.

Their innovation was instead of traveling like tourists and feeling like outsiders, guests on Airbnb can stay in neighborhoods where people live, have authentic experiences and live like locals in over 100,000 cities around the world. Airbnb’s platform also opened up a whole new revenue stream to thousands of people around the world; earning money on spare rooms. For hosts, Airbnb provided them an aggregation platform that brought global demand to individual’s doorsteps, while providing for pricing, scheduling, liability protection, and merchandising functionality to remove the friction from bringing their inventory online.

Online Travel

Because of the enormous number of flights, hotels, and accommodations available, travel is a natural fit for marketplaces that aggregate suppliers, simplifying the shopping process for consumers. Online travel platforms today make up over 50% of the industry’s bookings, a percentage that has been rising for 20 years, and will likely continue in the years ahead.

Airbnb (NASDAQ:ABNB) competes with a range of online travel companies such as Booking Holdings (NASDAQ:BKNG), Expedia (NASDAQ:EXPE), TripAdvisor (NASDAQ:TRIP), Trivago (NASDAQ:TRIV) and Alphabet (NASDAQ:GOOG.L).

Sales Growth

Airbnb's revenue growth over the last three years has been exceptional, averaging 59.6% annually. This quarter, Airbnb beat analysts' estimates and reported 17.8% year-on-year revenue growth.

Airbnb Total Revenue

Guidance for the next quarter indicates Airbnb is expecting revenue to grow 9.1% year on year to $2.71 billion, slowing from the 18.1% year-on-year increase it recorded in the comparable quarter last year. Ahead of the earnings results, analysts were projecting sales to grow 10.8% over the next 12 months.

Usage Growth

As an online travel company, Airbnb generates revenue growth by increasing both the number of stays (or experiences) booked and the commission charged on those bookings.

Over the last two years, Airbnb's nights booked, a key performance metric for the company, grew 16.8% annually to 132.6 million. This is solid growth for a consumer internet company.

Airbnb Nights and Experiences Booked

In Q1, Airbnb added 11.5 million nights booked, translating into 9.5% year-on-year growth.

Revenue Per Booking

Average revenue per booking (ARPB) is a critical metric to track for consumer internet businesses like Airbnb because it not only measures how much users book on its platform but also the commission that Airbnb can charge.

Airbnb ARPB

Airbnb's ARPB growth has been decent over the last two years, averaging 7%. The company's ability to increase prices while growing its nights booked demonstrates the value of its platform. This quarter, ARPB grew 7.6% year on year to $16.15 per booking.

Pricing Power

A company's gross profit margin has a major impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors may ultimately determine the winner in a competitive market, making it a critical metric to track for the long-term investor.

Airbnb's gross profit margin, which tells us how much money the company gets to keep after covering the base cost of its products and services, came in at 77.6% this quarter, up 1.1 percentage points year on year.

For online travel businesses like Airbnb, these aforementioned costs typically include customer support, payment processing, fulfillment fees paid to the airlines, hotels, or car rental companies, and data center costs to keep the app or website online. After paying for these expenses, Airbnb had $0.78 for every $1 in revenue to invest in marketing, talent, and the development of new products and services.

Airbnb Gross Margin (GAAP)

Airbnb's gross margins have been trending up over the last 12 months, averaging 82.9%. Its margins are some of the highest in the consumer internet sector, enabling it to fund large investments in product and marketing during periods of rapid growth to stay one step ahead of the competition.

User Acquisition Efficiency

Consumer internet businesses like Airbnb grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Airbnb is very efficient at acquiring new users, spending only 22.9% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a strong brand reputation and customer acquisition advantages from scale, giving Airbnb the freedom to invest its resources into new growth initiatives while maintaining optionality.

Profitability & Free Cash Flow

Investors frequently analyze operating income to understand a business's core profitability. Similar to operating income, adjusted EBITDA is the most common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of a company's profit potential.

Airbnb's EBITDA was $424 million this quarter, translating into a 19.8% margin. On top of that, Airbnb's spectacular EBITDA margins over the last four quarters have placed it among the most profitable consumer internet companies in the world.

Airbnb Adjusted EBITDA Margin

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Airbnb's free cash flow came in at $1.9 billion in Q1, up 20.2% year on year.

Airbnb Free Cash Flow

Airbnb has generated $4.16 billion in free cash flow over the last 12 months, an eye-popping 40.6% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Airbnb's Q1 Results

It was great to see Airbnb beat analysts' revenue and adjusted EBITDA expectations this quarter. We were also glad it expanded its number of bookings. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its revenue growth slowed. Overall, this was a mediocre quarter for Airbnb. The company is down 7.2% on the results and currently trades at $146.25 per share.

Is Now The Time?

Airbnb may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

There are numerous reasons why we think Airbnb is one of the best consumer internet companies out there. While we'd expect growth rates to moderate from here, its revenue growth has been exceptional over the last three years. Additionally, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits and its impressive gross margins are a wonderful starting point for the overall profitability of the business.

At the moment, Airbnb trades at 25.1x next 12 months EV-to-EBITDA. Looking at the consumer internet landscape today, Airbnb's qualities really stand out, and we really like it at this price.

Wall Street analysts covering the company had a one-year price target of $151.87 per share right before these results (compared to the current share price of $146.25), implying they saw upside in buying Airbnb in the short term.

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