I Wouldn't Chase Airbnb Here, But There Are Trades Galore

Breakout !! Just wow !! Airbnb (ABNB) released the firm's fourth quarter financial performance on Tuesday evening. To say that Airbnb hit the ball out of the park is to put it mildly.

For the three month period ended December 31st, ABNB posted GAAP EPS of $0.48 on record quarterly revenue of $1.902B. While the top line print beat Wall Street and was good enough for year over year growth of 24.2%, it was the bottom line number that blew investors away.

That $0.48 was up from $0.08 for the year ago comp and well above the $0.27 that Wall Streeters were looking for. Even more impressively, as revenue was growing 24.2%, total costs and expenses were only growing 14.5% to $1.667B. This took operating income from $76M to $235M. After accounting for interest income, which soared from $4M a year ago to an incredible $103M for the quarter reported, net income "popped" from $55M to $319M.

The Nitty Gritty

The improved performance was evident across the firm's array of key business metrics. Gross booking value, which is how the firm tracks host earnings, service fees, and taxes in the aggregate, increased 20% (+58% over Q4 2019) to $13.5B. Nights and experiences booked also increased by 20% to 88.2M. Average daily rates (ADR) or gross bookings per night and experience booked to get wonky about it, printed at $152.81, which was down 1% year over year, but up 36% from Q4 2019.

This all took adjusted EBITDA to $506M, which was up 52% from a year ago and up from a negative number back in 2019.

Guidance

Airbnb expects to see revenue of $1.75B to $1.82B for the current quarter after acknowledging that strong demand has carried through to the new year. This takes the low end of the range above the consensus view of $1.69B. This would be good for year over year growth of 16% to 21% (18% to 23% ex-FX).

The firm sees nights and experiences booked growing at a pace nearly as strong as it was in this quarter just reported. The firm does expect a slightly lower ADR than Q1 2022 ($159.82) and then face some downward pressure for the rest of the year as the firm introduces improved discounting tools.

For the full year, the firm expects to be able to maintain the strong adjusted EBITDA margin delivered for FY 2022, despite a slight drop in Q1 adjusted EBITDA margin due to changes made in the timing of some of the brand's marketing expenses. These expenses are expected to grow 150 basis points during Q1 over Q1 a year ago, but remain flat for the full year over last year.

Fundies

Airbnb drove $463M in operating cash flow, while laying out just $8M in the purchase of property and equipment. This left free cash flow at a beefy $455M in comparison to $378M for Q4 2021.

Turning to the balance sheet, ABNB ended the quarter with a cash position of $9.622B, and current assets of $14.861B. Current liabilities add up to $7.978B, which includes $1.182 in unearned fees. This puts the firm's current ratio at 1.21, which is healthy. Ex the unearned fees, which are not truly a financial liability, that ratio would be 1.47.

Total assets amount to $16.038B, of which less than 5% is in intangible assets. We like that. Total liabilities less equity comes to $10.478. This includes long-term debt of $1.987B, which the firm is fully capable of paying completely off out of pocket if need be. This is a very healthy balance sheet.

Wall Street

The community of sell-side analysts appears to be far less enthusiastic over Airbnb's performance as have overnight traders. After allowing for changes, I have found 16 sell-side analysts that are rated at four stars or better by TipRanks and have opined on ABNB since these earnings were released last night.

Across these 16 analysts, there are five "Buy" or buy-equivalent ratings, 10 "Hold" or hold-equivalent ratings, and one outright "Sell" rating. Three of these analysts (all "Holds") did not set target prices, so we are working with 13 targets.

The average target price across these 13 is $141.85 with a high of $165, twice (Michael Graham of Canaccord Genuity and Brian Fitzgerald Wells Fargo) and a low of $98 (Eric Sheridan of Goldman Sachs). Once omitting one of the highs and the low as potential outliers, the average target price across the other 11 analysts rises to $143.72.

My Thoughts

I like what I see. I like the quarter. I like the guidance. I like the free cash flow. I like the balance sheet. Not sure why so few fellow Wall Streeters see what I see. That said, I have no position in this name, so you might call me a new convert.

There are two ways one might see this chart...

Some might see a "double bottom" reversal with a $129 pivot...

Others might see a "cup with handle" pattern with a $121 pivot. Either way, the stock is breaking out above pivot with a gap up opening based on last night's earnings. Beware, both Relative Strength (RSI) and the daily Moving Average Convergence Divergence (MACD) are extended.

I would expect there to potentially be a test of pivot from above. That may be when we find out where exactly this pivot was and which of these two patterns was the actual setup. Either one puts the target price in a range spanning from $138 to $148. Not very precise. I know.

I am not interested in chasing the equity this morning. That ship has sailed. I am, however, very interested in perhaps selling (writing) $125 and $120 March 17th puts for roughly $3 and $2, respectively. If said trader were to get "tagged" on one contract of both in a month, that trader would be long 200 shares of ABNB at a net basis of $120 with the stock trading below $120.

Risk averse? Could always go out and buy a like amount of March 17th $110 puts for considerably less than a buck. That would increase the net basis, but it would also prevent a potential back-breaking catastrophe.

At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.