Poor Outlook for Travel Tech
The big sell-off in Airbnb (ABNB) this morning was not about the great quarter it just had, but what investors have guessed the company faces in 2023.
Prospects look weak next year.
The re-opening and revenge travel surge came through in such a way that growth was brought forward at a blistering rate.
The number's back up my thesis, with ABNBs revenue expanding by 29% or $2.9 billion, ahead of expectations at $2.84 billion.
On the bottom line, earnings per share jumped 47% to $1.79, breezing past the consensus at $1.47.
Yet the stock is down 9% in this morning’s trading, with a textbook “buy the rumor and sell the news” type of price action.
The US is barreling towards a recession in 2023, although the job numbers have stayed extremely resilient in the face of rate hikes.
If jobs can muscle through these next rate rises, then I do believe that a recession can be put off until 2024.
However, it will take time for the market to reflect the new realities and until then, ABNB is poised for a slowdown.
What do I mean by a slowdown?
The company forecasts around a 17% increase in sales which severely underperforms the 29% they registered last quarter.
While the forecast is not something to freak out about, investors are taking profits today and rotating capital elsewhere that isn’t growth.
Unless there is another forced lockdown, I don’t see ABNB beating the 29% expansion in revenue in the near future.
While sales won’t drop off a cliff next year, I don’t see how they get back to the 30% sales growth until we get to the other side of the recession which could be somewhere around 2024.
The downgrade in forecast in the travel industry was consensus.
At the individual level, the astronomical price rises for travel and leisure will have to abate somewhat to attract the incremental customer from now.
Most people have budgets, and they saved for 2 years to blow it all on a summer to remember (or forget).
Competitors such as Booking Holdings (BKNG) and Expedia (EXPE) have yet to report third-quarter earnings, and their guidance should be informative for overall travel trends. The two leading online travel agencies are likely to forecast a similar deceleration into the fourth quarter.
As the travel market evolves, Airbnb will continue to outperform because it’s a monopoly in the home-sharing business and other firms like booking.com don’t come close.
I would definitely classify ABNB as a solid long-term investment and to add on big down days.
Unfortunately, ABNB's core business is being overshadowed by the macro picture these days, which is highly negative for technology stocks.
The silver linings are there, as the business model has also turned from a net loss-making model to a nice profit machine this year.
Even if profits are under $1 billion per year, they were bleeding money just a few years ago as they worked to improve the unit economics in this unique industry.
The 17% increase next year will turn out to be a blip on the radar long term and I believe that once we get over the hump and interest rates start trending down, ABNB will be one stock that will shoot from the bottom left to the upper right.
