Can Airbnb Still Thrive in a Recession?

Digital lodging platform Airbnb stock has fallen (-30%) on the year
Airbnb raised its fiscal Q3 revenue guidance in anticipation of hitting all-time high quarterly revenues
Prudent investors can use the reset to look for opportunistic pullbacks

Digital lodging platform Airbnb (NASDAQ: ABNB) stock has fallen (-30%) on the year despite turning profitable with record revenues. The travel and leisure industry was taken to the woodshed during the pandemic lockdowns. The epicenter industry managed to recover as pent-up demand drove traffic back up to near pre-COVID levels. Airbnb is the Uber (NASDAQ: UBER) of digital lodging platforms connecting hosts with travelers in an asset-light model. The Company posted its most profitable and highest revenue generating quarter, and its strongest peak season in it history. However, shares sold off initially on fears of a front-loaded quarter signaling the best times are already in the rearview mirror as travel demand peaks ahead of a recession. The Company is a disruptor and unlike many meme stocks, it is profitable, on an adjusted basis. They are nipping on the heels of the largest lodging platform Booking Holdings (NASDAQ: BKNG) growing market share to 25% compared to Booking's 35%. Airbnb just authorized a $2 billion stock buyback with over $9 billion in cash. Airbnb raised its fiscal Q3 revenue guidance in anticipation of hitting all-time high quarterly revenues, however, their bookings were projected to normalize and stabilize moving forward, which implies a slowdown. Prudent investors can use the reset to look for opportunistic pullbacks to consider scaling in exposure.

Secular Trends Vs. Recession

Airbnb is a benefactor of several key tailwinds that can help mitigate pressures from an economic recession. The pandemic accelerated the adopt of remote and hybrid work affording full-time, part-time, freelance, and gig workers to work from virtually anywhere. This is segment of longer-term stays beyond just typical short-term vacation stay has been the strongest and fastest growing segment. It's fiscal Q2 2022 results indicate that long-term stays of 28 days or more was its fastest growing category by trip nights compared to 2019. Long-term stays rose 25% YoY and 90% since Q2 2019.

Were Earnings Really That Bad?

Quite opposite, they were impressively good. On Aug. 6, 2022, Airbnb released its fiscal second-quarter 2022 results for the quarter ending June 2022. The Company reported an adjusted earnings-per-share (EPS) profit of $0.56 excluding non-recurring items versus consensus analyst estimates for a profit of $0.43, beating estimates by $0.13. Revenues rose 57.6% year-over-year (YOY) to $2.10 billion missing analyst estimates for $2.11 billion. Nights and Experiences booked were the highest in its history. The Company generated $795 million in free cash flow and nearly $3 billion in the prior 12 months. Gross booking volumes (GBV) rose to $17 billion, up 27% YoY and up 73% compared to Q2 2019.

They Raised Revenue Guidance But…

Airbnb raised its fiscal Q3 2022 revenue guidance to $2.78 billion to $2.88 billion versus $2.78 billion consensus analyst estimates. However, they do note that seasonality was abnormal during the first half od 2021 and is starting to normalize from the second half 2021. Its Q3 2022 will be an inflection point where YoY with stabilize with modest acceleration in GBV growth. This caused shares to sell-off as analysts interpreted this as a sign of a peak with lighter than anticipating bookings heading into a recession. Evercore ISI noted that Q3 2022 Bookings and Nights guidance actually indicates a negative inflection point as they guided a (-4%) QoQ. However, the analyst did mention that an expectations reset was inevitable indicating a macro rather than competitive impact.