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About Airbnb
Everyone seems to be quick to blindly assert that the world around us is changing at a rapid rate.
Whenever someone takes them up on making such a generic, obvious statement and subsequently asks, “what is causing all of this change?”, the so-called few visionaries that can supposedly see around the corner just a little bit better than everyone else throw out terms such as “technology” and “innovation” and a few other milk toast phrases that attempt to make themselves feel and look like prodigies but in turn, it actually makes them appear quite ignorant and the complete opposite of insightful, or thoughtful for that matter.
This isn’t meant to be a tirade or a catalyst for opening up some sort of philosophy-filled discussion, but rather a mere observation on our part.
In all actuality, this is meant to point out that while, yes, we concede that technology is changing humans and the world around us, sometimes at an alarming rate, people also change because, well, they are complex individuals in and of themselves.
An example of this applies aptly to the millennial and Gen Z species.
Namely, it is our viewpoint that these groups share a common interest in not wanting to commit.
While the world around them has given them so many choices and options relating to how they can live their daily lives (through technology), it might just also be an inherent part of their upbringing and view of the world around them that has shaped them to be who they are today, for better or for worse.
We are no in any way, shape or form attempting to take jabs at the new, aging generations, but we are really trying to outline why Airbnb is a true millennials’ platform and in our eyes, a platform that will both play its role in moving the world forward while also continuing to change it.
Allow us to briefly explain.
Millennials, at least from our real-world experience, don’t want to move somewhere and stay there for an extended period of time. Instead, they want to quench their adventurous thirst or scratch their travel itch, at times impulsively wanting to see the world, largely irrespective of expense in hopes of gaining an experience that they never had before.
Airbnb is unequivocally the platform for them and thus the future.
For those who aren’t familiar with Airbnb, one of MacroHint’s founding partners used the company’s platform on a trip with a few of his college buddies to Washington D.C. and thus has been close to the Airbnb action before.
Here’s how it goes.
You browse other people’s properties listed on Airbnb’s website given your availability and other preferences pertinent to your stay, such as your budget, how many rooms are available, how much space is available, the available amenities, in which area you’re looking to stay and how many days you’re looking to stay.
Those types of details.
Once you find the spot of your choice, in a matter of seconds you can book your stay and be on your way.
Regarding the trip to D.C., it was a blast and objectively speaking, pooling a bunch of money together with friends was well worth staying at someone’s rather large house a few suburbs south of the Capitol.
Ultimately, Airbnb is very similar to booking a stay at a hotel and staying at the hotel but instead you’re staying in someone else’s residence.
While that traditionally used to just be one’s house, recently there have been rufflings regarding the company working with property managers and allowing their tenants to rent out their units as well, opening up a whole new market for Airbnb and its user base.
Property managers are greatly incentivized to allow this since Airbnb would likely have to relinquish a cut of its collected fees.
Speaking of fees, Airbnb generates the bulk of its revenue through the service fee it charges both its guests and hosts on the platform, namely, charging travelers somewhere in the neighborhood of usually no more than 14% per booking and hosts 3% of every completed booking done through Airbnb’s platform.
Before getting much more in depth with the company’s numbers and other relevant financials, it can be noted that the company isn’t by any means completely immune to disruptions and/or shocks within the travel industry (or changes in consumer discretionary spending shifts for that matter), however, from what we have generally heard through the grapevine, Airbnb has fared pretty well during the onset and progression of COVID-19, which makes the company unique in itself, especially if this same story is explicitly told through its numbers, particularly its total revenues.
Let’s not tease any longer and rather let’s get down to business with Airbnb’s stock.
Airbnb’s stock financials
Trading at a present share price of just below $132, Airbnb has a market capitalization of $83.33 billion, a price-to-earnings (P/E) ratio of 51.44 and doesn’t currently issue an annual dividend to its shareholders.
The company’s executive team deciding not to issue a dividend at this current juncture makes perfect sense to us, as it would act more as a cash drain than a quarterly treat for investors as this company needs to retain and reinvest as much as it possibly can in order to sustain its growth and stature in the lodging industry.
We should also mention that we were pleased to find that the company has a price-to-earnings ratio displayed, as it is especially rare for younger companies such as Airbnb to have earnings to display this early on, however, this company seemingly does and to that we say let’s try to investigate this a bit further.
The company’s P/E ratio appears to indicate the stock is trading above fair value, as it is generally accepted that a price-to-earnings ratio of 20 implies that a stock is trading exactly at fair value whereas anything higher implies that its trading above fair value, such as the case of Airbnb’s stock (NASDAQ: ABNB), or in other words, is overvalued relative to its actual, intrinsic value.
Nevertheless, we deem this as one of those exceptional situations where if a company maintains a recent (or current for that matter) track record of strong, demonstrated growth, primarily through revenue and overall customer retention, it might actually be worth paying a premium for shares in the company, as quality growth can sometimes be a worthy added expense for investors.
Let’s see if we should think about making an exception for Airbnb on this front.
As it relates to the company’s balance sheet, Airbnb’s executive team is in charge of approximately $13.7 billion in total assets as well as around $8.9 billion in total liabilities, which for this company and its current phase of growth is far from bad.
Namely, it is a great sign that the company’s total assets, again, this early on, outweigh its total liabilities by a fairly wide margin, as it affords the executive team the ability to not only get through the current recession, but furthermore invest and grow while others are slowing or even completely ceasing operations.
In terms of the company’s income statement, Airbnb’s total revenue has been in a gradual uptrend since 2017, starting at nearly $2.6 billion in 2017 and since rising to its latest reported figure of just under $6 billion (2021).
Something that caught our attention is the fact that the company’s total revenue remained relatively solid in 2019 and 2020, pegged at around $4.8 billion and $3.3 billion, respectively.
From our vantage point, the company’s revenue figure in 2022 wasn’t that surprising given that many COVID-19-related restrictions eased, enabling those who were (and still are) suffering from cabin fever to go out, travel, see the world and give lots of business to Airbnb in the process.
That being said, both the revenue figures in 2019 and 2020 were somewhat surprising but more so validating to our initial thesis that the company is recession resistant, of course, to a certain extent.
Yes, the company’s total annual revenue did experience a bit of a fall, but it wasn’t nearly as bad as one might’ve originally expected.
Moving over to the company’s cash flow statement, negative net income figures over the last five years was the norm, however, we’d like to point out that some years weren’t as bad as others, namely and unsurprisingly so, 2020.
For instance, the company’s net income in 2017 was as close to positive as -$70 million and -$17 million in 2018, however, became overwhelmingly negative in 2020 as its reported net income was in the neighborhood of -$4.5 billion.
Like most companies, especially in the software and technology spaces, broadly speaking, many were burning through some money in 2020, however, Airbnb was evidently especially sensitive as heightened expenses, global travel restrictions, currency headwinds and a multitude of other factors put new loads of financial strain on the company and its financials.
Thankfully, in the year following 2020 Airbnb reported net income of -$352 million, which is definitely a step back in the right direction.
It’s also worth pointing out that throughout all of these years of negative net income, Airbnb’s total cash from operations was positive, except, of course, in 2020, where the company lost -$630 million in total cash from operations. Nevertheless, in the following year the company’s total cash from operations ballooned to nearly $2.2 billion, which is nothing short of fantastic and gives us some rather strong intuition that the company will, in time, be able to turn its negative net income positive.
Airbnb’s stock fundamentals
Negative trailing twelve month (TTM) net profit margins aren’t the least bit uncommon for younger, growth-oriented companies like Airbnb.
However, Airbnb isn’t really normal in this regard.
That is, in the best way possible.
Specifically, according to TD Ameritrade’s platform, Airbnb’s present TTM net profit margin is 20.29% compared to the industry’s average of 6.43%.
For Airbnb to already have the ability to score a substantially higher TTM net profit margin than the competition is impressive to say the least, as it is immensely uncommon for companies at the same growth stage as Airbnb to be able to carve out a 20% net profit margin, especially this relatively early in its operations.
Lastly, the company’s TTM returns on assets and investment are just about equally as impressive as its current net profit margin.
Specifically, according to TD Ameritrade’s platform, Airbnb’s TTM return on assets stand at 10.98% to the industry’s average 6.88%, not to mention that its TTM return on investment is 21.60% to the industry’s 9.35%.
Should you buy Airbnb stock?
Airbnb is both a trend setter and a major beneficiary of current global trends.
Namely, as millennials and Gen Zers move more and more towards nomadism along with the world growing more comfortable with working remotely, not to mention that even if the state of the economy remains frothy for the foreseeable future people across the globe have found a new source of income through renting out their spaces (hosts on Airbnb), to us it is clear that Airbnb has a lot of secular tailwinds that could help grow its business through both boom and bust cycles.
Additionally, this company’s executive team has crafted a foundationally strong balance sheet that allows it to both play offense and defense, allowing it to grow while also incrementally hewing down its negative net income figures.
While we understand that many might be deterred by the company’s stock being currently overvalued according to its present price-to-earnings ratio, we at MacroHint see this as warranted for a company growing its footprint in both the housing sector and rental space as well, namely, apartments.
We give Airbnb’s stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.