Airbnb (ABNB)

Online accommodations platform Airbnb (NASDAQ:ABNB) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 6.1% year on year to $2.27 billion. On the other hand, next quarter’s revenue guidance of $3.02 billion was less impressive, coming in 0.6% below analysts’ estimates. Its GAAP profit of $0.24 per share was in line with analysts’ consensus estimates.

Company Overview

Founded by Brian Chesky and Joe Gebbia in their San Francisco apartment, Airbnb (NASDAQ:ABNB) is the world’s largest online marketplace for lodging, primarily homestays.

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.

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last three years, Airbnb grew its sales at an impressive 19.3% compounded annual growth rate. Its growth surpassed the average consumer internet company and shows its offerings resonate with customers, a great starting point for our analysis.

This quarter, Airbnb reported year-on-year revenue growth of 6.1%, and its $2.27 billion of revenue exceeded Wall Street’s estimates by 0.6%. Company management is currently guiding for a 9.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 9.9% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and suggests its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

Booking 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 and experiences booked, a key performance metric for the company, increased by 10.4% annually to 143.1 million in the latest quarter. This growth rate is solid for a consumer internet business and indicates people are excited about its offerings.

In Q1, Airbnb added 10.5 million nights and experiences booked, leading to 7.9% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating booking growth just yet.

Revenue Per Booking

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

Airbnb’s ARPB growth has been subpar over the last two years, averaging 2.8%. This isn’t great, but the increase in nights and experiences booked is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Airbnb tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether bookings can continue growing at the current pace.

This quarter, Airbnb’s ARPB clocked in at $15.88. It declined 1.7% year on year, worse than the change in its nights and experiences booked.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For online travel businesses like Airbnb, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include customer support, payment processing, fulfillment fees (paid to the airlines, hotels, or car rental companies), and data center expenses to keep the app or website online.

Airbnb’s gross margin is one of the best in the consumer internet sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 83% gross margin over the last two years. Said differently, roughly $82.96 was left to spend on selling, marketing, and R&D for every $100 in revenue.

This quarter, Airbnb’s gross profit margin was 77.7%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

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 25% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates that it has a highly differentiated product offering and strong brand reputation from scale, giving Airbnb the freedom to invest its resources into new growth initiatives while maintaining optionality.

Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.

Airbnb has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 36.6%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Airbnb’s EBITDA margin rose by 7.5 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q1, Airbnb generated an EBITDA profit margin of 18.4%, down 1.4 percentage points year on year. Since Airbnb’s EBITDA margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Airbnb’s EPS grew at an astounding 50.4% compounded annual growth rate over the last three years, higher than its 19.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Airbnb’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Airbnb’s EBITDA margin declined this quarter but expanded by 7.5 percentage points over the last three years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Airbnb reported EPS at $0.24, down from $0.40 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 2%. Over the next 12 months, Wall Street expects Airbnb’s full-year EPS of $3.95 to grow 8.4%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Airbnb has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 39.7% over the last two years.

Taking a step back, we can see that Airbnb’s margin dropped by 4.7 percentage points over the last few years. We’re willing to live with its performance for now but hope its cash conversion can rise soon. If its declines continue, it could signal increasing investment needs and capital intensity.

Airbnb’s free cash flow clocked in at $1.78 billion in Q1, equivalent to a 78.4% margin. The company’s cash profitability regressed as it was 10.7 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

Businesses that maintain a cash surplus face reduced bankruptcy risk.

Airbnb is a profitable, well-capitalized company with $11.49 billion of cash and $2.00 billion of debt on its balance sheet. This $9.50 billion net cash position is 12.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Airbnb blew past analysts’ EBITDA expectations this quarter. On the other hand, its number of nights and experiences booked slightly missed Wall Street’s estimates and its revenue guidance for next quarter slightly missed as well despite a tailwind from the timing of Easter this year. Zooming out, we think this was a mixed quarter featuring some areas of strength but also some blemishes. The areas below expectations seem to be driving the move, and the stock traded down 3.3% to $120.03 immediately following the results.

Updated: June 14, 2025 at 10:18 PM EDT

Are you wondering whether to buy Airbnb or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Airbnb is a rock-solid business worth owning. For starters, its revenue growth was impressive over the last three years. On top of that, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, and its impressive EBITDA margins show it has a highly efficient business model.

Airbnb’s EV/EBITDA ratio based on the next 12 months is 20.1x. Scanning the consumer internet space today, Airbnb’s fundamentals really stand out, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $138.96 on the company (compared to the current share price of $135.60), implying they see 2.5% upside in buying Airbnb in the short term.