What Happened:
Shares of online accommodations platform Airbnb (NASDAQ: ABNB) fell 5.81% in the morning session after KeyBanc analyst Justin Patterson lowered the stock from Overweight (Buy) to Sector Weight (Hold), citing concerns about slowing revenue growth and margin expansion. Patterson believes the leisure travel recovery is fading, leading to lower room nights (the number of nights that Airbnb properties are booked) and average daily rate (the average price per night that Airbnb properties are booked for). Both metrics are key indicators of Airbnb's business performance. The analyst added that margins have likely peaked, and revenue growth could decelerate to 11% in 2024. As a result of these concerns, Patterson lowered the price target on Airbnb shares from $160 to $138.
In addition to the company-specific news, stocks across major indices in general and tech in particular are lower today as the market assesses the potential of higher rates for longer, fearing that tighter monetary policy could tip the economy into a recession. This has pushed Treasury yields to levels not seen in more than a decade. Specifically, The 10-year Treasury yield last traded at 4.787%, reaching its highest level since 2007. Higher rates have a negative impact on equity valuations, as today's stock price is the present value of future cash flows discounted at a discount rate. The higher the prevailing interest rate environment, the higher that discount rate. In addition, higher rates particularly hurt higher-growth stocks such as tech names since investors must discount financials further out in the future back to the present.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Airbnb? Access our full analysis report here, it's free.
What is the market telling us:
Airbnb's shares are very volatile and over the last year have had 23 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was five months ago, when the stock dropped 10.6% on the news that the company reported first quarter results that beat analysts' gross bookings, revenue, earnings per share (EPS), and free cash flow estimates. However, room nights, revenue and adjusted EBITDA guidance for the next quarter came in below Consensus, with the weak EBITDA guidance attributed to "changes in the expected timing of marketing spend relative to the prior year." Additionally, full-year 2023 EBITDA margin will be similar to 2022, which is slightly below expectations and shows that the company will not be getting operating leverage on expenses this year. Overall, it was a negative quarter for the company given the outlook for the business.
Airbnb is up 52.1% since the beginning of the year, but at $129.16 per share it is still trading 15.8% below its 52-week high of $153.33 from July 2023. Investors who bought $1,000 worth of Airbnb's shares at the IPO in December 2020 would now be looking at an investment worth $892.44.
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