Editor’s Note: |
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It’s Friday. Time to give you a stock pick from our sister newsletter, The Spill, so you can think about it over the weekend and maybe make a move Monday morning. While The Juice helps you be better with money across the board, The Spill focuses on stocks financial pros are researching and judges how good of buys they are. |
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Proprietary Data Insights Financial Pros Travel Hosting Searches in the Last Month
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Consumer Discretionary |
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Record Revenues Despite This Economy |
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With fears of a worsening global economy, people are seeking extra sources of income – like renting out their homes. Scouring through Trackstar, our proprietary sentiment indicator, we noticed a surge in financial pros’ search activity in Airbnb (ABNB) around earnings. Searches are up nearly 800%. ABNB’s jump in popularity exceeded that of Shopify, Uber, and Etsy. Yet the stock sold off on its earnings news. Unlike many other tech startups from the last several years, ABNB generates over $3 billion in cash annually and turns a profit. So does this sell-off equal opportunity? Airbnb’s Business Airbnb operates an online platform that allows homeowners to rent out their spare rooms and houses to guests worldwide. Over 4 million people globally “host” guests. Visitors can stay at places as opulent as a multimillion-dollar mansion, as unique as a treehouse, and as cheap as a small apartment. Users can also book experiences, such as wine tastings or tours, regardless of whether they stay at an Airbnb property. In Q3 2022, the company reported 99.7 million nights and experiences bookings. In addition, it generated $15.6 billion in gross booking value. Despite the global economy weakening, the company is seeing strong growth in the number of new hosts on its platform as more people are using it to earn extra income through hosting. This has driven ABNB to its biggest and most profitable quarter yet. Source: Airbnb’s SEC filing Financials Source: Stock Analysis Revenues exploded in 2021, nearly doubling from 2020. Notably, 2020 revenues had declined 29.7% from 2019, largely due to COVID. But that’s better than most hotel chains did during that same period. ABNB’s revenues grew from $2.5 billion in 2017 to $5.9 billion in 2021. Moreover, it’s generated $8.03 billion in revenues over the last 12 months. The company has bounced back stronger than ever after the COVID pandemic. In fact, it’s in an extremely strong financial position, given all the economic headwinds. The firm has $9.6 billion in cash and $2.3 billion in debt. Not to mention a solid current ratio of 1.8x. ABNB generated $966 million in free cash flow last quarter, money it can invest in its business or return to shareholders. Valuation Source: Seeking Alpha ABNB trades at a P/E GAAP ratio of 43.8x, notably higher than its peers. For example, Booking Holdings (BKNG) trades at 33.3x, Expedia Group (EXPE) at 35.5x, and Hilton Grand Vacations (HGV) at 14.8x. Meanwhile, Tripadvisor (TRIP) is not yet profitable. It’s worth noting that HGV is a timeshare company with heavy asset investments, and is more representative of a traditional hotelier. Given its brand recognition, one could argue that Airbnb has a moat justifying its higher valuation. ABNB has a price-to-sales ratio of 8.4x, materially higher than its competitors. BKNG is at 5x, EXPE at 1.3x, HGV at 1.5x, and TRIP at 2.1x. Profitability Source: Seeking Alpha ABNB runs a net income margin of 20.2%, unmatched by its peers. BKNG comes closest at 15.2%. In addition, ABNB has an effective management team. Its return on equity of 32.6% is notably better than EXPE at 15.3%, HGV at 17.2%, and TRIP at -0.87%. Only BKNG eclipses it at 52.9%. As we noted earlier, ABNB is a cash machine. The company generated $3.2 billion in operating cash flow over the last 12 months. BKNG has generated $4.6 billion, EXPE $3.9 billion, HGV $895 million, and TRIP $505 million. ABNB’s operating margin of 20.5% is stellar. But it’s not as strong as BKNG at 29% or HGV at 22.7%. Growth Source: Seeking Alpha ABNB has had revenue growth of 50.9% YoY. While that’s impressive, its competitors have done even better. BKNG revenue has spiked 73.8%, EXPE 56.4%, HGV 119.6%, and TRIP 77.4%. However, when you look at revenue for three years (compound annual growth rate), you get a clearer picture of how explosive Airbnb’s growth has been. Its 17.9% is significantly higher than BKNG’s 2.3%, EXPE’s -1.5%, and TRIP’s -4.2%. While HGV is higher at 22.5%, it’s not even close to the scale of ABNB. Our Opinion 8/10 ABNB survived the pandemic and is now stronger. It’s generating record revenues despite all the global economic uncertainty. While it trades at a higher multiple than its peers, one could argue this is justified given its moat. We could easily see more hosts join the platform to generate extra income if we fall into a deep recession. And ABNB is already profitable, unlike other platform companies like Uber, Shopify, and DoorDash. We like ABNB long term and believe buying at these levels will pay off over the next several years. |
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