Airbnb Stock Price Set to Rally This Winter

Alex Cho

Alex Cho

CEO l Research Director

[email protected]

Jason Chen

Jason Chen

COO l Research Editor

[email protected]

Shakeel Stewart

Shakeel Stewart

Columnist and Author

As vaccination programs were aggressively taking place in the United States and most parts of Europe, Airbnb, Inc. (NASDAQ:ABNB) saw high growth in revenue figures in Q2 2021, driven by the pent-up demand for travel, with fully vaccinated people dusting off their suitcases immediately. 

Q2 2021 Airbnb earnings summary

The company reported a gross bookings value (GBV) of $13.4 billion for the second quarter (up 37% from the pre-pandemic corresponding period), aided by a surge in the average daily rate (ADR) in addition to the recovery in nights and experiences booked on Airbnb. The improved ADR comes mainly from a shift in the geographical revenue mix resulting from North America and major European cities recovering more rapidly compared to low-ADR locations such as South America and Asia. Airbnb’s story, in our opinion, will gather momentum and strength along with Q3 and Q4 earnings, which is likely to pave the way for higher stock prices.

We believe the booking patterns revealed in Q2 2021 will continue through Q3 and Q4 this year, with domestic and short distance travel continuing to be the more popular travel option across all locations, while cross-border travel may remain sluggish with most countries continuing to enforce travel restrictions due to the complexity of the endlessly mutating Covid-19 variants and some of their resistance to the existing vaccines. 

Meanwhile, with intermittent lockdowns and quarantine curfews imposed in most major cities across the world, remote working and distance learning will continue further, which could indirectly benefit Airbnb as remote working does not only mean work-from-home but work from anywhere. Although modest for the moment, Airbnb identifies long-term stays (28 days or more) to be the fastest-growing category by trip length, which solidifies this claim.

Revenue forecast

Consequently, we see Airbnb reporting near pre-pandemic level nights and experiences booked on its platforms in Q3 and Q4 2021, while ADRs will continue to remain at $160 levels during this period facilitating a GBV of $13 billion and $12.7 billion in Q3 and Q4, respectively. 

Assuming take rates of 16.5% and 14%, in line with historical averages for Q3 and Q4, we forecast revenues of $2.1 billion and $1.8 billion in Q3 and Q4, respectively. Thus, we expect the year 2021 to end with a revenue of $6.2 billion (+87% YoY).

Figure 1. Airbnb Revenue Projection

With the fully vaccinated population reaching 30% already in both Asia and South America regions, we hope to see recovery in domestic and short distance travel in these regions, driving nights and experiences booked on Airbnb by 29% in the year 2022. 

However, this could also mean that the revenue mix may take a path towards pre-pandemic proportions with cross-border travel returning to normalcy following restrictions being lifted for fully vaccinated travelers, which would consequently pull the overall ADRs down to around $137. Accordingly, we believe GBV in 2022 to come slightly over $54 billion, and with an average take rate of 13.3%, the revenue to grow 18.1% YoY to $7.2 billion.

Figure 2. Population vaccinated against COVID-19

‘Flexible dates’ and ‘flexible destinations’ features introduced by Airbnb on its platform this year have demonstrated strong results with over 40% of searchers looking for flexibility in either dates or destinations in June 2021. Although these features may not seem significantly sufficient to move revenue numbers, we believe these could play a major role in matching more guests with hosts by directing the demand to where there is adequate supply. We see booking conversion rates being enhanced as a result, while also facilitating ADRs to settle at a higher equilibrium going forward.

Stock based compensation impacts profitability

Airbnb has been making losses at the EBIT level in the past few quarters and this has been predominantly due to stock-based compensation. For the year 2020, this amounted to a hefty $3 billion. However, we observe this non-cash expense being significantly lower in the first half of 2021 and expect it to continue at this level going forward. Owing to the record-breaking revenue figure we expect for the upcoming quarter, we forecast Airbnb to report enhanced and positive operating margins, with the full-year EBIT margins expected to improve to -3.8% from -106.3% in the previous year and the pre-pandemic level of -10.4%. We expect EBIT margins to enhance even further in 2022 and turn positive at 5%, aided by the growth in revenue and better fixed cost management.

Debt and interest rate metrics improve 

In March 2021, the company issued 0% convertible senior notes with a conversion rate of 3.4645 (conversion price of $288.64). The notes will be maturing on March 15, 2026. Subsequently, the expensive term loans obtained in 2020 at interest rates amounting to 9.5% and 15.1% for the first and second lien, respectively, have been fully retired. This capital structure has allowed the company to manage its short to mid-term cash flow more efficiently. Airbnb also entered into capped call transactions to reduce the potential dilution of Class A common shareholders as well.

Amid improving EBIT margins and insignificant debt servicing obligations, we forecast Airbnb to report improved earnings to reach a positive EPS of $0.57 for the year 2022. However, the effective tax rate will remain highly unstable due to the differences in statutory tax rates in different countries.

With its strong cash position of $7+ billion, we believe the company will not be raising any debt capital in the foreseeable future. There will, however, be significant investments in product development and costs related to the acquisition of additional hosts in the coming quarters.

Final thoughts 

Airbnb continues to disrupt the traditional hotel business as we know it, and we believe the company could eventually disrupt the housing markets across the world because of favorable macroeconomic developments such as working and learning from home. The outlook for Airbnb in the post-pandemic era, in our opinion, is very promising. We expect ABNB stock to gain some momentum in the coming months along with the release of quarterly earnings.

Disclosure: Cho Research was not compensated by Airbnb to publish “Airbnb Stock Price Set to Rally This Winter” Though Cho Research does use the research dollars it
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