NYC Can’t Stop Airbnb

New York City recently dropped the hammer on Airbnb (ABNB).

Like many municipalities, they weren’t keen on the rental free-for-all.

So, they required short-term rentals to register with the city and keep stays under 30 days.

It’s a headline that got a lot of attention from financial pros who looked at articles related to Airbnb restrictions at an increasing rate, according to our Trackstar data.

Back in November, we gave the stock an 8/10 rating.

Despite the crackdowns, we stand by this rating and explain why below.

Airbnb’s Business

If you’re looking for a way to earn some extra cash renting out your apartment or home, Airbnb is the way to go.

The company’s app allows everyday folks and commercial companies to list properties for stays ranging from a few days to months.

It allows you to book outside typical hotels, which can lead to some wild experiences, from staying at luxury mansions to castles.

A luxury Treehouse in Mexico

Operating in over 220 countries, Airbnb divides its business into geographies:

• North America (49% of total revenues)
• Europe, Middle East, and Africa (EMEA) (32% of total revenues) 
• Latin America (LATAM) (7% of total revenues) 
• Asia Pacific (APAC) (12% of total revenues) 

While it’s just one city, New York is a key market for Airbnb and speaks to the broader issues faced by the company.

Paris added similar registration requirements as well as tourist taxes.

London, Berlin, and San Francisco all have there own versions of restrictions on how long folks can rent their place and whether they need to collect additional taxes.

Financials

Source: Stock Analysis

Outside of Covid, Airbnb displays incredible growth.

But unlike many startups, the company is immensely profitable, generating a P&L profit and a whopping 43% free-cash-flow margin.

And get this…they have $2 billion in long-term debt but $10.3 billion in cash and equivalents, or $12.53 per share.

In fact, the company’s got $5 billion more in total assets than it has in liabilities.

That’s impressive, considering they repurchased almost $7 billion in common stock over the last three years.

Valuation

Source: Seeking Alpha

Airbnb isn’t exactly cheap when you compare it to Booking Holdings (BKNG) or Expedia (EXPE) on a price-to-earnings or price-to-cash flow basis.

Usually, we’d find that disparity accounted for in the growth measures. However, we’ll see that isn’t exactly the case.

Growth

Source: Seeking Alpha

BKNG delivered higher revenue growth last year and is expected to next year compared to ABNB, while EXPE was lower on both counts.

Other players like Trip.com (TCOM) and Tripadvisor (TRIP) demonstrated better revenue growth recently.

However, when you look back over a three and five-year period, ABNB is the clear winner.

Profitability

Source: Seeking Alpha

It’s also worth noting ABNB doesn’t have the strongest EBIT margins. However, management said they are keenly focused on managing fixed costs.

And with a free-cash-flow margin over 30%, that should translate into some solid windfalls for shareholders.

Our Opinion 8/10

Airbnb is a cash-generating machine with plenty of upside potential.

So long growth continues at +20% a year on the revenue side, we see further improvements in margins from economies of scale.

And there’s nothing wrong with management plowing money back into share buybacks as a nice treat for investors.