Playing Airbnb (NASDAQ: ABNB) After Earnings

After almost doubling in value in their first few months of public trading, shares of Airbnb (NASDAQ: ABNB) are struggling to keep their head above water even as their core revenue engine starts to rev up again. While we’ll never know how their stock would have performed in March and April of 2020, we can have a fair idea from the charts of the airlines, cruise ships, and hotel groups. 

What’s interesting, and perhaps worrying if you’re a current Airbnb investor, is that few of these fellow travel-orientated stocks are trading below their January 2021 levels right now. Airbnb is though, and is down close to 40% from February’s all-time high even as the global reopening picks up steam. Shares are lower than where they IPO’d in December and are even within a few dollars of printing all-time lows. 

The company’s Q2 earnings report, released after yesterday’s session, will go some way to helping Wall Street decide if this is just short-term correction linked to the general softness in tech, or something more fundamentally wrong. For starters, there was a marked improvement in the company’s top-line revenue growth, which at 5.4% year on year, was printed in a nice shade of black compared to the red of Q1. However, EPS took the shine off it, coming in below analyst expectations and at a loss of -$1.95. That being said, the company still managed to hit more than $10 billion in bookings for the quarter which was up 50% on the same quarter last year. 

Continuing Recovery

This is a sign that things are returning to normal across the economy but in particular in the travel space. We’ve seen regular updates from the airlines on increasing passenger numbers and while it’s unsurprising to see this flow through to a big jump in year-on-year bookings on Airbnb’s platform, it still must be nice for investors to get that level of affirmation. After the recent slump in the share price, they need it. 

Management confirmed that this trend should continue into the rest of the year, and while it might take until 2022 for bookings to outperform 2019’s numbers, the signs are there that that day is fast coming. The continued rollout of COVID vaccines is playing a large part in these forecasts. 

Management spoke to this in their letter to shareholders, saying “as vaccines become more widely available, and restrictions ease, there are signs that people are ready and willing to travel. For example, we saw a sharp increase in bookings in the U.K. immediately after British Prime Minister Boris Johnson announced plans to exit lockdown in February, as well as a sharp increase in bookings in France following the easing of travel restrictions in May. And for guests aged 60 and above in the U.S., who were amongst the first groups to benefit from vaccine rollouts, searches on our platform for summer travel increased by more than 60% between February and March 2021."

Playing The Long Game

For investors considering getting involved now that the band aid of uncertainty around earnings has been ripped off, there is an appealing aspect to opening a long term position at current prices. In recent months we’ve had the likes of HSBC and CFRA upgrade Airbnb shares to a Buy, on the back of a faster than expected recovery in the travel sector. Analyst Angelino Zino from the latter went so far as to say "we believe Airbnb’s business model and growth opportunities are highly attractive and we struggle to find a better way to play the travel space.” 

Their price target of $235 is all the more compelling now after the recent bout of selling, and as of Thursday’s close it suggested an upside of about 70%. Needham and Susquehanna were also among those who joined the bull camp in Q1, both calling Airbnb a top recovery play. With no fundamental news driving shares lower in the months since, you’d have to be thinking there’s a strong case for a recovery once a risk-on sentiment returns to the market. A higher interest rate environment has proved to be a considerable headwind but for a company at the forefront of the 21st century travel industry, it shouldn't be more than a minor speed bump in the grand scheme of things.