Buy Airbnb Stock: Despite the recession, the travel industry continues to be strong

Introduction

Fears of a slowdown in travel demand continue to scare investors. Many investors think travel demand will fade quickly, especially as consumer confidence declines. Due to inflation and economic outlook. So far this has not happened. Several companies operating in the travel industry said they had a strong start to the summer and continued strong demand expectations in 2022. Therefore, I believe investors should look at Airbnb (NASDAQ: ABNB). Fast growing company limited by negative economic outlook.

Airbnb reported impressive earnings on August 2, 2022. Everything was perfect including growth, efficiency, free cash flow and guidance. There was certainly room for further improvements and revenue generation potential, but I believe the results will not justify a decline in the stock price, which has been heavily impacted by future demand for inflation and economic slowdown. Therefore, I maintain my Buy rating on Airbnb as I believe strong travel demand will continue and Airbnb will continue its impressive performance in generating strong cash flows.

Income report

• Booked nights increased 25% y/y to 103.7 million.
• Total book value grew 27 percent annually to $17 billion.
• Revenue grew 58 percent to $2.1 billion.
• Net income increased from -68 million to $379 million.

As the brief summary above shows, Airbnb reported another strong earnings report that demonstrates the strength of its business model. Not only did the company grow total nights booked, but the company was able to increase average daily rates and take rates. Due to favorable market conditions, total bookings increased faster than total nights, indicating an increase in average daily rates. More importantly, Airbnb has been able to improve occupancy rates. The company’s revenue growth rate more than doubled its total book value growth rate, from 9.7% a year ago to 12.4% in the current quarter, driven by successful revenue generation. As such, Airbnb has been able to ensure that its strength comes from both the platform’s ability to monetize and the demand for vacation rentals offered by individual hosts. So I continue to believe that Airbnb will continue to grow. The company’s platform could see continued growth, improved operational efficiency and monetization.

Outlook

Airbnb has predicted a strong outlook for the third quarter of 2022. The company is forecasting the highest quarterly revenue in Airbnb history, and average daily rates are growing even more. Airbnb also expects its overall book value growth to be consistent with second-quarter levels that reflect a continuation of the strong demand environment.

Strong industry perspective

Despite Airbnb’s strong performance, many investors continue to anticipate a recession. Consumer confidence is low, inflation is high, and geopolitical risks remain; However, not only Airbnb, but the entire travel industry is giving a strong outlook to 2022. I believe it will continue to be a favorable environment for Airbnb.

Delta Air Lines ( DAL ) has presented a strong travel demand outlook in the airline industry through 2022. The company It expected revenues to exceed 2019 levels in 2022, and a 15% drop in strong demand led to pricing power. Additionally, American Airlines ( AL ) said its third-quarter earnings are likely to be higher than 2019 levels, despite capacity being 8-10% lower due to higher travel demand.

In the hotel industry, Marriott International ( MAR ) presented a strong travel demand outlook in 2022. The company expects strong demand to keep earnings per unit above 2019 levels. Additionally, 203,000 more units are under construction and 495,000 units are under the development pipeline, indicating the company’s confidence in continued demand.

Finally, Visa (V) also reported a strong recovery in travel demand. In the last reported quarter Q3, the company’s cross-border volume, travel, increased 40% year-on-year, total payment volume increased 12% year-on-year, total payment volume led the overall growth.

While each of these companies has unique businesses, they are all affected by the travel industry. Therefore, it may not be unreasonable to say that strong airline demand equates to strong Airbnb accommodation demand. However, if all types of companies operating in the travel industry expect strong travel demand in 2022, I believe it’s reasonable to argue that Airbnb’s demand environment will be just as strong as the company predicts. So, as the favorable environment is likely to continue at least until the end of 2022, Airbnb is still a buy despite macroeconomic concerns.

Price and finance

Airbnb pricing is getting a premium these days, but I believe it’s worth it. The company has a market capitalization of about $74 billion and a price-to-earnings ratio of about 60.7. Airbnb’s year-over-year revenue growth is strong at 58%, or 64% adjusted for foreign exchange. Not only is growth strong, but the company’s free cash flow is strong as well. Trailing twelve month free cash flow is $2.9 billion, which puts the free cash flow ratio at about 39.2%. Additionally, given this strong cash flow, the management team announced a $2 billion share repurchase program to offset stock-based compensation expense and reduce the number of shares outstanding. Therefore, with a favorable demand environment likely to continue throughout 2022 with continued strong growth rates and cash flow, I believe Airbnb’s valuation is compelling.

Airbnb’s financial health is extremely strong. The company has total cash and short-term investments of approximately $9.9 billion with total assets of approximately $19 billion. On the other hand, Airbnb’s long-term debt stands at just $2 billion. With strong cash flow and a financial position with low long-term debt, I believe Airbnb’s balance sheet is in a favorable position to support Airbnb’s growth and operations.

Summary

Airbnb’s growth and operational efficiency have been impressive with expectations to continue. A favorable travel industry outlook and Airbnb’s strong financial position and cash flow may continue to support Airbnb’s premium pricing. So, I continue to believe that even though some of the recession fears and travel volume have had an impact on Airbnb, even if it bought Airbnb.