To The Moon

I. Company Profile: Focusing on the booking of hotels and B&Bs around the world $Airbnb, Inc.(ABNB)$ 

Airbnb, founded on June 27, 2008, is a global B&B short-stay apartment booking platform with more than 4 million featured B&Bs, short-stay rentals, hotels, apartments, and guest houses for customers to book worldwide, and these booking services cover short-stay B&B listings in 191 countries and regions. Hosts can upload their properties to provide accommodation and experience for their guests, and guests can book their hosts' properties on the app.

Airbnb (ABNB.US) went public in the U.S. on 2020-12-10, with a current (May 10 pre-market) market cap of $81.2 billion and a PE (TTM) of 40x. The current share price is basically around the price on the first day of the IPO, but is up 86.7% from the $68 offering price. Even with the ups and downs of the financial markets in '21 and '22, Airbnb's stock price has remained relatively stable.

In terms of business model, Airbnb is ostensibly a company that earns a price difference (service fee), but in reality, Airbnb is more likely to be a financial company, that is, by depositing the money from room bookings on the platform and earning interest and financial income on this money through the time difference between tenant collections and host settlements. Specific is not, you can look at the Q1 earnings report to verify!

Second, earnings analysis: revenue increased by 20%, the first time to achieve Q1 profit, but earnings mainly from the "interest income"!

According to the earnings report released after the bell on May 9, Airbnb's revenue for Q1 23 reached $1.8 billion, up 20% year-over-year (up 24% year-over-year excluding currency effects); net profit reached $117 million, the first time Airbnb achieved Q1 single-quarter profit under U.S. GAAP! In order to explore the merits of this earnings report and analyze the subsequent growth drivers, we need to conduct a thorough analysis.

(A) Income statement analysis: profits all rely on "interest income"

From the financial level, everything looks good, but if the income statement of the earnings report (as shown below) is broken down, we can very clearly see the following features:

(1) Operating profit loss. 23 Q1 revenue was $1.818 billion, but costs and expenses accounted for $1.823 billion, which means the actual operating profit was a loss, roughly $5 million.

(2) Interest income is super! Q1'23 interest income was $146 million and interest expense was $4 million, that is, net interest income alone was $142 million, far exceeding the net profit of $117 million! The difference between net interest income and net income is other expenses and taxes, etc.

Therefore, it is very clear why Q1'23 was profitable, relying on "interest" income to support the first profitable quarter, and operating profit was the same as Q1'22, a loss of $5 million.

(2) Reasons for the surge in interest income: high cash reserves + high interest rates due to the Fed's interest rate hike

(1) First of all, the reason for the interest income is definitely because there are a lot of cash assets. After reviewing the financial report, the company's cash in Q1'23 was $8.166 billion and the total liquid assets were $18.869 billion, which far exceeded the revenue.

(2) Secondly, interest rates are higher! As you can also see from the earnings explanation, the high interest income is mainly due to higher cash and investment balances and higher interest rates on investments. airbnb's investment portfolio is mainly invested in money market funds and short term high quality bonds. If you turn to the graph of the daily US federal funds rate (equivalent to money market fund yields) from Q1'22 to Q1'23, it becomes very clear.

If we take an average of 3%, $18.8 billion of liquid assets can generate at least $18.8*0.03/4=$141 million of interest income in one quarter, which is basically the same as the interest income in Q1 of FY23; however, in Q1 of 2022, since interest rates have just started to increase, the average interest rate is only about 0.15%, which can generate 149*0.15% in one quarter. However, in Q1 2022, since interest rates have just started to increase, the average interest rate is only about 0.15%, which can generate 149*0.0015/4=0.05 billion in interest in one quarter, combined with the interest income of Q1 22 is only $5 million, which is basically the right amount.

The most crucial reason for Airbnb's profitability in Q1 2023 is that the Federal Reserve raised interest rates! Resulting in a significant increase in monetary earnings!

But obviously, it is expected that interest rates will not be lowered in 23 years, so 23 years is okay, but 24 years? Such profits are not sustainable!

(iii) Reasons for maintaining a slight operating profit loss: business growth is the focus, not cost reduction and efficiency

In the process of dismantling Airbnb's financial report, we found that the rhythm of operating profit loss of 5 million was basically maintained in Q1 of 22 and Q1 of 23. profitability.

However, if we analyze Airbnb's gross margin, we will find that Airbnb's gross margin is actually very high, accounting for about 75% of the total year-round. Airbnb's business model is profitable, and such high gross margins allow Airbnb more room for maneuvering, which will inevitably be reflected in cash flow.

In the following, let's discover the essence of Airbnb's business model by analyzing Airbnb's cash flow.

(4) Cash flow analysis: unrealized service fee income is the prettiest pup

There are two major points of interest in the process of dismantling from net income to operating cash flow:

(1) Equity-based compensation. (1) Equity-based compensation, which is an expense cost, but does not cost the company any money and is paid for by all shareholders, leaving the company with $240 million in cash flow;

(2) Unrealized service fee income. This is the largest component of cash flow. In Q1 23, there were $989 million in unrealized fees, which means that Airbnb received money from customers, but the money has not yet been settled to the hosts, and Airbnb relies on the interest on this money to achieve profitability. So Airbnb is more like a finance company than a rental agency.

By splitting the operating cash flow statement, it is very clear that Airbnb's business nature is not profit but real cash flow at this stage.

Excluding the impact of non-cash costs and taxes, Q1 2023 adjusted earnings before taxes, interest, depreciation and amortization (EBITDA) of $262 million was a record high for the company in the first quarter, demonstrating Airbnb's long-term strength in strong business performance and rigorous management of its cost structure.

This is why Airbnb has the wherewithal to buy back shares. Over the past twelve months, Airbnb has repurchased $2 billion worth of stock through free cash flow, and on earnings day, May 9, Airbnb's board of directors approved a new stock repurchase program to repurchase up to $2.5 billion worth of common stock.

(V) Other Fundamental Analysis: Businesses Return to Strong Growth

(1) At the revenue growth level: Q1 2023 revenue reached $1.8 billion, the best first quarter in the company's history. Airbnb's revenue grew 20% year-over-year in the quarter primarily due to (1) strong growth in lodging and experience bookings and (2) continued firmness in average room rate (ADR).

(2) Strong growth in room bookings as travel recovers. 36% year-over-year growth in total nights booked for cross border travel in Q1 2023. Asia Pacific Q1 2023 booked room nights grew 40% year-over-year, driven by the positive impact of the ongoing recovery in Asia Pacific following the outbreak. Bookings for cross-border travel from other regions to Asia Pacific destinations increased 160% compared to Q1 2022, and North America also saw a 34% year-over-year increase in the number of nights booked for cross-border travel in Q1 2023.

(3) Travel is a human need and demand for bookings is at record levels. Even with the ongoing global macroeconomic uncertainty, the number of active booking users on the platform is at its highest level ever, and this is largely due to the growing user base, with bookings made by hosts in advance up nearly 25% compared to last year, which the authors believe is still largely due to the recovery from the epidemic and people starting to resume travel, with further growth expected in the future.

(4) Rapid growth in room supply. The number of active listings increased by 18% in Q1 2023 compared to Q1 2022.

(5) The company has approved buybacks of up to $2.5 billion. Since Airbnb has so much cash, buybacks will not only benefit the stock price, but also reward shareholders.

The above five points fully illustrate that the company is fundamentally benefiting from the post-epidemic travel recovery, and both the demand side and the supply side are growing rapidly, further strengthening the company's competitive advantage and driving strong business growth.

The above is the analysis of the whole earnings report. In general, although the company's earnings in 23Q1 were completed by interest, the company's gross margin was high, generally about 75%, and the profit potential was sufficient. By analyzing its cash flow performance, we can find that the company has abundant cash flow and many costs are issued in a non-cash way. The company takes up a lot of cash through the time difference in room fees between the payment of fees by the tenants and the settlement by the hosts, through which the cash can be used to repurchase shares and can further expand the business, so the analysis of Airbnb should not just look at profits but also at cash flow.

To sum up, Airbnb's 23 years may be a very good year in history in terms of earnings growth and profitability!

Third, the trend analysis: the bottoming has been completed, the follow-up can be expected

After the company went public in December 2020, it happened to be during the epidemic, and the global tourism industry was not good. Although the outside world was full of expectations for Airbnb, the rise was followed by a fall all the way to the bottom in December 2022, that is, after the formation of the first category of buying points, it started to rise all the way.

Through the daily level technical analysis, we can know that the current is in the first pivot after the rise, belongs to the daily level of the second type of buy point formation, belongs to the 30-minute level of the third type of buy point has been formed, and has begun to rise momentum, combined with the fundamental situation, especially the performance growth brought by the recovery of tourism, is expected to follow the stock price there is room for further performance.

IV. Key Conclusions

(1) Airbnb's gross margin is high, at around 75%, but current operating profit is slightly loss-making in order to expand the business and build up growth advantages;

(2) Airbnb's profit in Q1'23 came mainly from interest income in the context of the Fed's interest rate hike and is expected to continue to be profitable in 2023, but that profit is not sustainable;

(3) Airbnb has very strong cash flow, and one of the key features of its business model is that it relies on the time difference between when a guest pays for a room and when a host receives a settlement;

(4) Airbnb's business is expected to continue to grow strongly as consumption and travel recover after the outbreak;

(5) In terms of the market, Airbnb has already started bottoming out, and the future share price is promising.

This article is an exchange of insights, not investment advice, please make careful decisions.

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