Airbnb's (NASDAQ:ABNB) Posts Q3 Sales In Line With Estimates But Quarterly Guidance Underwhelms

Full Report / November 01, 2023

Online accommodations platform Airbnb (NASDAQ:ABNB) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 17.8% year on year to $3.4 billion. However, next quarter's revenue guidance of $2.15 billion was less impressive, coming in 1.32% below analysts' estimates. Turning to EPS, Airbnb made a GAAP profit of $6.63 per share, improving from its profit of $1.79 per share in the same quarter last year.

Airbnb (ABNB) Q3 FY2023 Highlights:

  • Revenue: $3.4 billion vs analyst estimates of $3.37 billion (0.84% beat)
  • EPS: $6.63 vs analyst estimates of $2.10 (216% beat but not comparable because of a one-time tax benefit)
  • Revenue Guidance for Q4 2023 is $2.15 billion at the midpoint, below analyst estimates of $2.18 billion
  • Free Cash Flow of $1.31 billion, up 45.6% from the previous quarter
  • Gross Margin (GAAP): 86.5%, in line with the same quarter last year
  • Nights and Experiences Booked: 113.2 million, up 13.5 million year on year (slight miss)

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 Marketplace

Marketplaces have existed for centuries. Where once it was a main street in a small town or a mall in the suburbs, sellers benefitted from proximity to one another because they could draw customers by offering convenience and selection. Today, a myriad of online marketplaces fulfill that same role, aggregating large customer bases, which attracts commission-paying sellers, generating flywheel scale effects that feed back into further customer acquisition.

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 55.3% annually. This quarter, Airbnb reported 17.8% year-on-year revenue growth, in line with analysts' expectations.

Airbnb Total Revenue

Guidance for the next quarter indicates Airbnb is expecting revenue to grow 13.1% year on year to $2.15 billion, slowing down from the 24.1% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results, analysts covering the company were projecting sales to grow 12.8% over the next 12 months.

Usage Growth

As an online marketplace, Airbnb generates revenue growth by increasing both the number of bookings on its platform and the average order size in dollars.

Over the last two years, Airbnb's nights booked, a key performance metric for the company, grew 28.8% annually to 113.2 million. This is among the fastest growth rates of any consumer internet company, indicating that users are excited about its offerings.

Airbnb Nights and Experiences Booked

In Q3, Airbnb added 13.5 million nights booked, translating into 13.5% 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 measures how much the company earns in transaction fees from each booking. Furthermore, ARPB gives us unique insights as it's a function of a user's average order size and Airbnb's take rate, or "cut", on each order.Airbnb ARPB

Airbnb's ARPB growth has been decent over the last two years, averaging 8.01%. The company's ability to increase prices while constantly growing its nights booked demonstrates the value of its platform. This quarter, ARPB grew 3.73% year on year to $30.01 per booking.

Pricing Power

A company's gross profit margin has a major impact on its ability to extert 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 86.5% this quarter, up 0.4 percentage points year on year.

For online marketplaces like Airbnb, these aforementioned costs typically include payment processing, hosting, and bandwidth fees in addition to the costs necessary to onboard buyers and sellers, such as identity verification. After paying for these expenses, Airbnb had $0.86 for every $1 in revenue to invest in marketing, talent, and the development of new products and services.

Airbnb Gross Margin (GAAP)

Gross margins have been relatively stable over the last year, averaging 81.9%. Airbnb's 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 24% 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 reported EBITDA of $1.83 billion this quarter, resulting in a 54% margin. Additionally, Airbnb has demonstrated extremely high profitability over the last four quarters, with average EBITDA margins of 32%.

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 $1.31 billion in Q3, up 36.5% year on year.

Airbnb Free Cash Flow

Airbnb has generated $4.25 billion in free cash flow over the last 12 months, an eye-popping 46.4% 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 Q3 Results

With a market capitalization of $75.5 billion, a $11 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Airbnb has the resources needed to pursue a high-growth business strategy.

Nights and Experiences Booked (key measure of volumes) grew but missed expectations slightly. However, revenue beat by a bit. On the other hand, its revenue guidance for next quarter underwhelmed. Overall, the results could have been better. The company is down 3.4% on the results and currently trades at $115.24 per share.

Is Now The Time?

Airbnb may have had a bad 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 20.2x next 12 months EV/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 $141.8 per share right before these results, implying that they saw upside in buying Airbnb even in the short term.

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