Going Into Earnings, Is Airbnb the Best Stock to Ride Out the Travel Boom?
2023.05.08 08:30
- International hotel reservations and airport travel volumes are increasing, leading to positive results for the travel industry in Q1 23
- Airbnb’s business is expanding and has good financial health
- However, Booking may be a better stock to ride out the travel boom due to lower price-to-booking multiples, better revenue growth, and greater upside potential
With global travel finally getting the highly-awaited boost from the Chinese reopening and consumer prices still rising rapidly in most developed countries, the travel play is back in vogue.
According to recent statistics from AAA Booking, international hotel reservations are experiencing an astounding increase of over 300% this year compared to 2022. Likewise, the European Airport Trade Body recently reported that 45% of airports have already recovered or exceeded pre-pandemic travel volumes.
This has led to a flood of positive results within the hotel and travel booking industry already in Q1 23 — typically a weaker quarter for the sector due to the cyclical nature of the business.
Booking Holdings (NASDAQ:) a staggering revenue of $3.8 billion as gross bookings skyrocketed by 44% to reach $39.4 billion for the quarter.
Similarly, Expedia (NASDAQ:) also impressive numbers for the quarter, with record-breaking revenue of $2.67 billion and gross bookings rising by 20% to reach an impressive $29.4 billion.
Now it all comes down to the biggest star of the pack: Airbnb (NASDAQ:). After a highly positive 2022, the company is expected to post earnings of $0.14 per share, a considerable increase from the -$0.03 reported during the same period last year but a considerable decrease from last quarter’s $0.48.
ABNB Earnings Expectations
Source: InvestingPro
Let’s use our InvestingPro tool to take deep dive into the company’s financials and earnings expectations to help answer the question: Is Airbnb the best travel stock to buy now?
InvestingPro users can do the same analysis for every stock in the market just by signing up on the following link. Try it out for a week for free!
A Great Year
Despite being arguably the world’s best-known company in its segment, Airbnb’s business is still in expansion. After a difficult 2020 followed by a daring IPO in the middle of the pandemic, the California-based company stepped on the gas in 2022 and delivered its first profitable full year with healthy margins.
That’s why the company now has an excellent financial health score on InvestingPro.
Source: InvestingPro
In FY 2022, ABNB’s revenue skyrocketed to $8.4 billion — an impressive growth of 40% compared to the previous year (46% excluding foreign exchange impacts). This outstanding performance led to a GAAP-based net income of $1.9 billion.
Source: InvestingPro
The company also reported remarkable growth in both Adjusted EBITDA and Free Cash Flow, reaching $2.9 billion and $3.4 billion, respectively – a positive increase of 49% from the previous year.
ABNB Free Cash Flow Yield
Source: InvestingPro
The driving force behind this exceptional success was unwavering guest demand throughout all regions during 2022. As travelers increasingly ventured across borders and returned to urban destinations, every region witnessed significant expansion on their platform.
Looking ahead to the Q1 earnings report, demand and profitability are expected to keep rising at a healthy pace. The combination of a favorable macroeconomic environment for the travel industry and strong results from the peer companies have led to four positive EPS expectations revisions from analysts against only one negative over the last 90 days.
Airbnb or Booking?
The bearish case for Airbnb stock lies in the fact that most of the company’s tailwinds are sectoral in nature. Thus, other less-sexy stocks within the travel industry such as Booking — may provide better price-to-booking multiples today.
Airbnb is currently trading at 39.9x earnings, which is significantly higher than the competition, as shown on InvestingPro:
Source: InvestingPro
In terms of the remaining multiples, Booking is also doing a much better job than Airbnb, trading at much healthier margins.
Travel Industry Stocks Financial Multiples
Source: InvestingPro
Booking is also beating Airbnb by more than twofold when it comes to delivering revenues today, showing that the tech startup still has a long way to go before competing with the industry’s behemoths in terms of generating cash.
Finally, Airbnb’s revenue growth also looks less healthy than Booking’s (*ABNB’s revenues on top, Booking’s below).
Source: InvestingPro
These are the reasons why InvestingPro is pricing in a much greater upside for Booking than for Airbnb over the next 12 months (ABNB’s Fair Value on top, Booking’s below).
Source: InvestingPro
Bottom Line
Make no mistake, Airbnb is a great company with tremendous growth prospects. However, given the current challenging market conditions, Booking should remain a much better stock to ride out the travel boom for the medium term.
While I find it likely that ABNB will surprise to the upside on its earnings report tomorrow, the company’s growth prospects could still need time to play out, and risks impending from prolonged higher capital costs should pose a threat for the remainder of 2023 — assuming the Fed won’t pivot this year. Should macro-financial conditions point to a more risk-on environment again, investors are advised to take a second look at the stock.
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Disclosure: The author is long on Booking stock, and doesn’t hold ABNB.
