Airbnb Dip-Buyers Should Hold Off After Nasty Turnaround
What a nasty turnaround. On Thursday evening, Airbnb (ABNB) posted the firm's third quarter financial results. At first, the stock took off, peaking above $167 per share in an algorithmic knee-jerk reaction to that release. That was a more than 13% pop on top of a closing price of $147.37 that had ABNB up 4.6% for the regular session.
The overnight hours, however, were not kind to ABNB as the stock gave back all of those after-hours' gains and more. I now see the stock trading with a $137 handle ahead of the U.S. open on Friday morning. That would be down more than 6% from the closing price on Thursday afternoon and down almost 18% from the overnight high. What the actual heck happened here?
Gross booking value (GBV) printed at $20.1 billion for the third quarter driven by strong growth in nights and experiences booked and a modest increase in the firm's average daily rate (ADR). Nights and experiences booked popped 8% to 122.8 million versus the year-ago comparison, driven by growth across all regions. That ADR was up 1% to $164 versus the year-ago comp. Ex-FX, the growth was 2%. For the quarter, the firm's implied-take rate (revenue divided by GBV) was flat from Q3 2023 at 18.6%.
Operations
For the third quarter, Airbnb posted a Q3 GAAP EPS of $2.13 on revenue of $3.732 billion. While the top line narrowly beat Wall Street and reflected year-over-year growth of 9.7%, the bottom-line print fell a couple of pennies short of consensus. As those sales were growing 9.7%, the commingled costs of revenue and operating expenses increased 16.1% to $2.207 billion. That left GAAP operating income at $1.525 billion (+1.9%), taking the firm's operating margin down to 40.9% from 44.0%.
After accounting for interest, non-operating income and losses, and taxes, net income dropped from $4.374 billion a year ago to $1.368 billion. Much of this was due to a net provision for income taxes that resulted in a more than $3 billion swing from the year-ago result. Still, income before taxes increased just 3.3% to $1.735 billion. After all was said and done, the firm's GAAP earnings per diluted share printed at $2.13, down from $6.63.
Guidance
For the current quarter, Airbnb sees revenue of $2.39 billion to $2.44 billion, which would be good for growth of 8% to 10%. The firm's implied take rate will likely be lower year over year primarily due to one-time benefits related to unused gift cards in 2023. Excluding the gift cards, revenue growth would probably be two percentage points above guidance.
For the full fiscal year, the firm is looking to deliver an adjusted EBITDA margin of 35.5%, and a free cash flow margin several points above that. A decline in Q4 adjusted EBITDA margin is priced into this guidance.
For Q1 2025, year-over-year revenue growth is expected to be negatively impacted by a tough comparison to Q1 2024 due to the timing of Easter and the inclusion of Leap Day.
Fundamentals
For the period reported, Airbnb generated operating cash flow of $1.078 billion. Out of that came a few bucks' worth of capex spending, leaving free cash flow of $1.074 billion. During the quarter, the firm, which does not pay cash dividends to shareholders, did repurchase $2.592 billion worth of common stock.
Turning to the balance sheet, the firm's cash position of $11.253 billion (which is why I did not make a big deal of the repurchased shares that dwarfed free cash flow) and current assets of $18.319 billion. Current liabilities add up to $11.336 billion including unearned revenue of $1.657 billion. This puts the firm's current ratio at a healthy 1.62. Adjusted for those unearned revenues, which are not a true financial obligation, that ratio rises to 1.89.
Total assets amount to $22.172 billion, including goodwill and other intangibles of $2.601 billion. At less than 12% of total assets, this is not a concern. Total liabilities less equity comes to $13.684 billion, including long-term debt of $1.994 billion. This is something the firm could take care of out of pocket. This balance sheet is very strong.
Wall Street
Since these earnings were released, I have come across nine highly-rated (four-plus stars at TipRanks) sell-side analysts that have opined on ABNB. I also came across a number of not so highly-rated analysts. If one is interested in a larger, but potentially lower quality snapshot, then one can go dig up those opinions.
Across these nine analysts, there are three "buy" or buy-equivalent ratings, five "hold" or hold-equivalent ratings and one outright "sell" rating. The average target price across the nine is $141.22 with a high of $165 (Michael Graham of Canaccord Genuity) and a low of $115 (Brian Nowak of Morgan Stanley). Omitting those two targets would bring the average target across the remaining seven analysts up just slightly to $141.57.
My Thoughts
I think what happened last night was that the algorithms first saw the revenue growth and the gross booking value and ran with that. Then, traders and the slightly slower algorithms saw the struggling margins and the less-than-spectacular guidance over not just the current quarter, but the quarter after that. I think that forced a lot of investors to bail out overnight.
Readers will see that (excluding off-hours trades) shares of ABNB sold off hard from March into early August and rallied from there. The shares had retaken their own 200-day SMA on Thursday but ran smack dab into the 61.8% Fibonacci retracement level of that entire selloff. This proved to be tougher resistance than many thought on Thursday at the time. Now, it will be etched in stone and very visible to algorithms trading the stock.
Relative strength is sinking fast and the daily MACD is very close to taking on a negative posture. ABNB is still a cash flow beast with a strong balance sheet. This is not a weak company. I think investors are now deciding that it may not be worth 36-times forward-looking earnings. Short interest is not a major factor, so that crowd will not be coming to the rescue today.
My personal thoughts on the matter? The swing crowd is probably already engaged, but someone looking to invest on this dip might be wise to see if the shares approach their 50-day SMA, which is currently down around $129.
At the time of publication, Guilfoyle had no positions in any securities mentioned.