Airbnb, Inc ( $Airbnb, Inc.(ABNB)$ ) started out with the goal of being “different” from mainstream hotels and lodges by offering experiences via what could be construed as “VERY short-term leases” with the lowest amount of hassle from end users. In a time of “revenge spending”, i.e. an incremental increase in consumer spending after an unprecedented adverse economic event, the company was supposed to do well. Despite this, the stock’s earnings per share (EPS) missed analysts’ consensus expectations of $0.70. The reasons why are an interplay of a number of ancillary factors paired with key line item trends.
Trend Studies
In absolute terms, the company’s line item trends are a decidedly mixed bag when comparing yearly trends (“1st-order”) vs trend growth changes (“2nd-order”):
While revenues have risen for three years, the company’s costs have not been nearly as proportional. What’s concerning that revenue growth (2nd-order) has been halving for two years straight. On the net income front, it has been a roller coaster in both 1st and 2nd order terms. The same goes, of course, for net income attributable on a per-share basis. In the most recent year, however, the per-share net income growth trend is negative while the 1st-order trend doesn’t recover nearly as much ground as was lost in 2022. Now, the company registered a net income loss of $349 million in Q4 2023, a large factor for which is the $620 million payout made to settle a tax claim from the Italian government. Overall, this is 41% of the net income earned by the company for the entire year. While this would certainly buck the net income trend, the rest of the trends inferred would have been unchanged.
Given the company’s relatively recent “public” status, stock-based compensation might be a concern for some investors, given its potential (obligatory) impact on the bottom line. In this item, there has been a substantial uptick in expenditure relative to the general downtrend over the past two years. However, this is not as substantial as in 2020. For a “gig economy” company, volume is everything as it seeks to quell the growth of new rivals and disrupt the industry its operating in. Given this paradigm, it could be argued that massive spending is required to maintain revenue growth is necessary to outline the value it offers to end users. The company’s published key business metrics don’t necessarily reflect this.
After 2021, the number of nights and experiences booked does tend to march in lockstep with gross booking. In 2nd-order terms, however, the growth of these metrics has been in double-digit negatives since. The derived “booking per night or experience” ratio is an indicator of the premium for the experience the company purportedly offers end users: after the massive boom in 2021, there has been a slip to a level well under half of that in 2020. 2nd-order terms indicate that it is less worse than in 2022 but that’s no small comfort given the modest ratio contribution.
A Strained Business Model
In nearly nearly every major social media forum (even the AirBnB subreddit, which is a Top 1% channel on that platform), the digital footprint of negative experiences faced by end users with the company’s offering significantly outweigh the positive. Even if the property were to be as advertised, add-on fees have high potential to sour a user’s experience and impact their budget. Numerous surveys indicate that favour towards the company’s offering have been slipping since 2019, which were reaffirmed in 2021 as well as in 2022. This is a far cry from 2015 when Goldman Sachs reported overall favorability tilted towards Airbnb (and away from traditional hotels) after a first-time user avails its services.
Given the vast outlay of host properties across a large number of nations and regions, it’s entirely logical to assume that manually ensuring a high quality of experience and effectively adjudicating issues would be prohibitively expensive (if not impossible). Further personnel costs would also likely elevate the pricing for the end user (or “guest”) well above the average cost charged by most hotels. In other words, the company’s disruptive model would fail against that of legacy players.
In Conclusion
Taking into account survey trends vis-à-vis line item trends, it’s evident that the company is struggling with onboarding new users and maintain a high level of repeat business from those already on the platform despite the company reporting that two-thirds of its platform hosts now offer weekly or monthly discounts. The company’s working on expanding its footprint in Switzerland, Belgium and the Netherlands. Given that at least two of these territories are traveller favourites that are exceptionally well-catered by hotels, lodges and hostels, it remains to be seen if this will turn the company’s growth outlook around without significant additional costs. Added to that is the fact that a stalling in “vacation splurging” trends, highlighted in the middle of last year, delivers a macroeconomic bearish impetus that would likely weigh down the company’s growth in the year to come.
Current trends indicate that the industry Airbnb is operating in do not face a significant disruption from its operations while end user preferences do not show significant monetizable upticks. Stock price corrections wouldn’t entirely be out of order.
Note: Sophisticated investors can consider making a play on upside trajectories using Exchange-Traded Products (ETPs) like the $3X ABNB(ABN3.UK)$, which gives a 3X daily-rebalanced exposure to the stock.
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