Airbnb’s Profits Travel Higher as Demand Remains Elevated

Airbnb ABNB shares booked about 10% higher in after-hours trading, primarily driven, we believe, by stronger profitability in 2022′s fourth quarter. We plan to lift our $117 fair value estimate by a high-single-digit percentage to account for stronger EBITDA over our 10-year forecast and time value. We see Airbnb as a company with strong revenue and EBITDA growth prospects, although already reflected in its share price.

The highlight of the report was 2022 EBITDA of $2.9 billion (versus our $2.8 billion forecast), representing a margin of 35% (33.5%), driven by strong execution across the cost of goods, marketing, product development, and operational and support lines. Encouragingly, Airbnb expects 2022 margins to endure in 2023 despite ongoing platform investments and mix-related pressure on average daily rates. Longer-term, we now think operating margins can approach 30% by 2026 versus our prior mid-20s expectation as the company continues to drive cost-efficiency, scale demand growth, and leverage its intact network advantage (source of its narrow moat).

Meanwhile, we came away with a mixed view on Airbnb’s demand. On one hand, fourth-quarter revenue growth of 24% easily surpassed our 19% estimate. On the other hand, sales were driven by a stronger take rate, which we attribute to timing, as opposed to bookings, which grew 19% compared with our 22% forecast. Bookings were influenced by room night growth of 20%, which missed our forecast of 23%, and a flat average daily rate, which was in line with our prognosis. Still, the demand outlook was constructive, with first-quarter nights growth expected to be near the 20% level posted in the fourth quarter and about 150% of 2019′s level, mitigated by daily rates expected to decline slightly (but still around 130% of prepandemic marks) on a mix shift to urban and cross-border bookings. All in, we plan to adjust our 2023-27 average sales growth to around 15% from 16%, driven by a lower average daily rate in 2023-24.