Shares of sensation travel platform Airbnb (NASDAQ: ABNB) are trading lower by as much as 2.0% in the post-market hours of Thursday evening, an initial reaction after a tense quarter full of challenges for the industry.
As the American traveler updates destination preferences this summer, ditching most of the previously standard domestic travel plans in change for overseas vacations, specifically to nations in the European region.
The stock had been fighting to find direction during the past year. Still, now that investors realize that there is plenty of traction and potential growth underlying in the company's financials, Airbnb stock has been on a steady uptrend that started as recently as May of 2023. Today, the task is to identify justifiable factors and reasons that can expand this newfound momentum into the future.
Markets are rewarding Airbnb stock over other travel service competitors, as some of the most commonly followed valuation multiples will suggest. Traders often study valuations as a market gauge to determine where the 'popularity contest' shows some signs of favoritism.
Airbnb analyst ratings, which point to today's prices being the fair value, may need to be adjusted soon after these achievements for the second quarter.
Results Speak for Themselves
Within Airbnb's earnings release, management led with the juiciest of highlights, reminding investors why this company is the favorite among travel stocks. Net revenue grew by as much as 18% during the past twelve months, fueled by heightened travel volumes and management initiatives to expand Airbnb's global network.
Taking at look at these KPIs (Key Performance Indicators) will be critical.
Gross Booking Value "GBV" grew by 13% during the year to a total value of $19.1 billion. This is extremely important since investors had expressed concerns over the stability of the platform's ADR (Average Daily Rate) for each listing; this statistic can now put those worries to rest.
The strength in the model operates in a two-way street, as hosts and guests can also expect stable pricing dynamics allowing for smoother travel planning and customer experience.
As the brand grows in market share and adoption, largely due to its stability and reliability of service, nights and experiences booked also grew to 115.1 million during the quarter, representing an 11% advance from a year prior. Considering that Airbnb is still categorized as a 'growth' company, investors quickly got used to the fact that the company would wait to turn any net income soon.
The company posted a net income of $650 million, representing a 26% net income margin. Taken on its own, this metric is not that impressive; however, keeping in mind that this would make for the most profitable quarter in company history (which is still a 'growth' company) makes it all the more significant.
One of the side effects of not generating steady profits, and by the same token, positive free cash flow, is that management often chooses to dilute investors (issue more common stock) to fund losing operations. This is no longer the case for Airbnb, as the business successfully turned $900 million of free cash flow in the second quarter, allowing for some ample breathing room.
In fact, the benefits of these massive free cash flow funds are beginning to be felt by current shareholders, as management decided to deploy $2.5 billion into share repurchase programs over the past twelve months.
These allocations reduced the total outstanding shares from 705 million in 2022 to today's 686 million. Numbers aside, this gives investors a growing piece of a growing pie, a win-win-win!
Stock Commands the Rewards
Money likes growth; it is no secret that this has always been the case, and markets being made up of money would, of course, seek to go after the stocks that propose the best growth rates at the best quality. Airbnb is one of the favorites regarding market sentiment, so there must be a clear path to future growth expectancy.
Management has laid out a simple strategy to keep Airbnb on the road to success in the coming years, keep demand strong and increase the number of listings by directly working to make hosting a more mainstream activity.
The company added more active listings this quarter than in any previous period in company history, and remote work and travel trends continue to push as tailwinds for future growth.
Regarding direct outlook guidance from management, they are only pointing to the next quarter rather than the full-year expectations. However, this is enough to understand what can fuel another three months of upside for the stock price.
Double-digit growth across revenue, gross booking values and volumes, and a continued expansion of networks in underpenetrated regions are all part of the growth formula in Airbnb.
Broader markets are noticing these promises of growth as they reward the stock with richer valuation multiples. Specifically going over valuations that look at future growth rather than past growth, the forward price-to-earnings ratio will be the king of all gauges. Airbnb trades at a forward P/E of 35.0x, while competitors like Booking.com (NASDAQ: BKNG) and Expedia Group (NASDAQ: EXPE) trade for 17.4x and 8.4x, respectively.
This makes Airbnb the most 'expensive' alternative; however, as with many products and services, there must be a reason why it is priced higher than other similar names.
As investors now know, the financial breakthroughs and operational scalability are making way for a continued growth path; management repurchasing shares can be taken as a view of undervaluation and a bright future ahead, one that investors could share as well.