My valuation analysis on Airbnb

Happy Sunday 🐯 

A few days ago, Airbnb reported its earnings, and it plunged by 12% after the earnings. So let's take a look at the company's financial report.

ABNB Q1 Results + Guidance:

First of all, airbnb's revenue and EPS in Q1 this year both performed quite well, with revenue of $182 million, up 20% year-over-year and exceeding expectations of $1.79 billion. They even made their first GAAP profit in Q1, which was $117 million. We will talk more about this later. All in all, the most basic financial data exceeded expectations. And these exceeded expectations are quite normal, most of the company's Q1 are quite good, other hotel travel network's financial reports are also okay.

However, Airbnb's earnings report still has a flaw, that is, their bookings were 121 million, up 19% year-over-year and 37% year-over-year, which is lower than the expected 122 million. There's no particular reason for this under-expectation, as there's nothing bad about the forecast, it's just a little lower than Wall Street's expectations. But for Q2, the company gave lower-than-expected guidance. First, they see a slight year-over-year decline in daily room rates in Q2, and a slowdown in Q2 room bookings to a level below revenue growth, while their Q2 revenue guidance is between $2.35 billion and $2.45 billion, with a median of $2.4 billion, slightly below the Wall Street estimate of $2.42 billion. Management said this was "due to the suppression (backlog) of travel demand for many people in 2022 due to the impact of the Omicron variant of the new crown virus. In 2022-Q2, this pent-up demand was released, resulting in a large increase in the forecast for last year's Q2. So when the bookings for 2023 Q2 are compared to last year's Q2, they will appear weaker." While this guidance is a little weaker, it is only a little worse than expected and not a big deal. The drop is more of a valuation correction. Although there were flaws in the earnings report, they were not major, and the indicators that fell short of expectations were only modest. Airbnb's valuation is on the high side compared to its peers, so it's only natural that the valuation will be revised.

Currency Fund + Repurchase:

In addition to the company's main business, they also used cash from customers to buy money funds and short-term securities. This enabled them to achieve an interest profit of $146 million in Q1, up 41.75% YoY from $5 million in the same period last year. It is clear that they achieved $117 million GAAP earnings this time with a lot of help from this interest profit, because the interest profit has no cost. As the Fed's high interest rates continue, they may still be able to continue to achieve GAAP earnings this year. Although GAAP earnings are just beginning, their non-gaap earnings have long been realized and their long-term EPS growth is expected to be 20.8%. The company has also approved a $2.5 billion buyback program. So airbnb is no longer a small growth stock, it is starting to become a mid-sized growth stock.

GPT

The company mentioned in their earnings report that they are going to embed GPT4 into their platform next year and that customers will start to see a big change. This statement is clearly meant to improve their story. But on that note, other companies like booking.com are also saying they're doing something similar, which is integrating generative AI into their platform. So airbnb needs a little more passion if it wants to improve its storytelling and maintain a much higher valuation than its peers.

Valuation:

Finally on valuation, if we are conservative and use the industry PEG of 1.3 - 1.6 (2022 low + industry average), and the current EPS growth rate and expectations to calculate, airbnb's reasonable stock price in a year (12 months) will be in the range of $102 - $126. If we use the DCF model, the intrinsic value today is $91. That means Airbnb is still expensive after dropping 11% after the earnings report. It's just that it's a much, much better valuation than when they first went public - after all, they've been trading sideways for 2 years, and their results have been growing for 2 years, so naturally the valuation has gotten better. Although airbnb defines itself as a technology stock, I think with time, and airbnb's growth rate slowing down, the market will slowly bring them closer to the valuation of sites like booking.com. For example, even if BKNG's stock price is at an all-time high, the long-term average eps growth rate is 19%, but FWD PE is only 19x, while airbnb's growth rate is only 2% higher, but FWD PE is 36x. So if the high interest rate environment continues, it is only natural that airbnb's valuation will continue to slowly drop to the level of other peers, after all, their EPS growth rate is not much higher. And this situation is already happening, their valuation is getting closer and closer to other established booking hotels over time. That's why I used a PEG of 1.3-1.6 to calculate, just in case airbnb will slowly return to the PEG level of its peers, and the DCF model calculation further verifies that the current PEG expectation is reasonable. So if you are interested in Airbnb, then wait until 109, or 87 support level and then open a position will be better, to prevent the growth rate slowed down after the story is not so good, the premium began to reduce the risk of valuation began to close to the old platform.

In general, the financial report is not a big problem, only the valuation correction after the financial report. Basically, in addition to the valuation is much higher than the peers with the same growth rate, airbnb is still good. As long as the price is bought right, this company still has investment value. So airbnb I think you can still wait, or if you buy high in the short term may be a little time cost.

$Airbnb, Inc.(ABNB)$ 

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