Airbnb (NASDAQ: ABNB) reported second-quarter earnings after the market closed on Tuesday. Among the headlines, the company set a new record with more than 103 million nights and experiences booked. But that figure fell short of the 106 million Wall Street was expecting.
Airbnb also narrowly missed top-line estimates, though it beat expectations on the bottom line. Revenue grew 58% to $2.1 billion in the second quarter, and the company posted earnings of $0.56 per diluted share under generally accepted accounting principles (GAAP), up from a loss of $0.11 per diluted share in the prior year.
Investors were less than impressed and the stock dropped as much as 8% after hours on Tuesday but mostly recovered on Wednesday. Is this a buying opportunity?
An adaptable business model
Since the onset of the pandemic, Airbnb has significantly outpaced the growth of the broader travel industry, and management attributes that success to its adaptable business model and relentless innovation.
Airbnb crowdsources rental properties from over 4 million hosts, allowing guests to book immersive stays and experiences in thousands of cities. That asset-light business model allows the company to adapt more easily to shifting consumer preferences. For instance, it takes months and costs millions of dollars to build a new hotel, but Airbnb can onboard new hosts (and expand its inventory in popular travel destinations) in a matter of minutes, without spending much money.
Fast turnaround time is not the only issue, though. Airbnb can afford to operate in locations that simply wouldn’t be profitable for big hotel chains, and supply tends to follow demand on its platform. For instance, demand for non-urban travel has risen sharply over the last three years, and Airbnb has seen non-urban listings jump 50% during that period. But the company would be fine if that demand vanished tomorrow, whereas a hotel operator would not. It costs money to maintain a hotel, and if demand disappeared, the property would likely close at some point.
Finally, by crowdsourcing rental properties, Airbnb can offer guests far more flexibility in terms of lodging type and location. Its platform lists everything from suburban homes and urban apartments to rural farmhouses and remote cottages. Better yet, it features thousands of unique stays like yurts, treehouses, and castles. No hotel chain can match that range.
A culture of innovation
Airbnb has introduced several innovative features over the past year, and those updates are already driving growth. In 2021, Airbnb simplified the host onboarding process and launched AirCover for hosts, free damage protection, and liability insurance. That helped Airbnb achieve a record 6 million active listings by the end of the year.
The company also introduced flexible search parameters, allowing guests to surface travel ideas when they are flexible on data and location. That feature effectively turns Airbnb into a recommendation engine, and it allows the company to steer demand toward available supply. And guests love it. The flexible search feature has been used over 2 billion times.
In 2022, Airbnb introduced AirCover for guests, a service that protects travelers from last-minute host cancellations or situations where the listing is not as described. Since its launch, that feature has already led to a 10% uptick in rebookings.
Additionally, Airbnb recently introduced Categories, helping users search for a specific type of rental property. Categories range from beachfront and national parks to designer homes and “amazing pools,” and guests have already engaged with the feature 180 million times. Better yet, since introducing AirCover for guests and Categories, Airbnb has seen a record number of daily visitors.
Airbnb stock is worth the risk
Airbnb puts its market opportunity at $3.4 trillion — a figure that comprises short-term stays, long-term stays, and experiences — leaving plenty of room for future growth. And given its adaptable business model and capacity for innovation, Airbnb is well positioned to capitalize on that opportunity.
Even so, investors may be hesitant to buy its stock right now in light of the macroeconomic environment. After all, a recession would likely cause consumers to cut back on discretionary purchases like travel and tourism.
However, the stock looks relatively cheap at its current valuation of 11.3 times sales, especially compared to its historical average of 20.8 times sales. With that in mind, investors should consider buying a few shares of this growth stock. But rather than buying an entire position at once, consider splitting the capital into thirds to build a position through dollar-cost averaging.