On Tuesday evening, Airbnb (ABNB) reported what looks to me to be a very nice quarter. Yet, I saw the stock trading more than 10% lower in early market trading. It was the current quarter guidance that scared investors overnight. Was the weakness justified? Come on, we'll explore. All the cool kids are coming.
For the three month period ended March 31st, Airbnb posted a GAAP EPS of $0.18 on revenue of $1.818B. The firm beat Wall Street on both top and bottom line performance, while growing sales 20.5% year over year. The cost of that revenue increased 17.9% to $428M, as operating expenses increased 21.2% to $1.395B. After factoring for interest and taxes, the firm was left with a net income/loss of $117M, up from a loss of $19M for the year ago comparison.
This was the firm's first ever GAAP profitable first quarter. Gross bookings were up 19%. Nights and Experiences booked were up 19%. However, average daily rates (ADR) were flat from the one year ago period.
Guidance
For the current quarter, the firm sees revenue of $2.35B to $2.45B. This pulls the midpoint below the $2.42B that Wall Street was looking for, but would be good for growth of 12% to 16%. However, the firm expects to see unfavorable comparisons for Nights and Experiences booked as the year overlaps what was "pent-up" demand in 2022. Year over year growth in Nights and Experiences booked in Q2 2023 will likely be lower than will be revenue growth during the quarter.
The firm also expects a slightly lower ADR (average daily rate) in Q2 2023 than was the case a year earlier. In addition, Airbnb expects adjusted Q2 2023 EBITDA to be similar to adjusted Q2 2022 EBITDA on a nominal basis, but lower on a margin basis. The firm also sees increased sales and marketing expenses.
Is Wall Street wrong? This is some pretty cautious guidance. Are "they" just being conservative? I'd like to think, but I would have liked to have seen a more thorough explanation offered up in the material provided. Airbnb does not really explain why. Why will performance struggle? Is lapping a strong 2022 really the whole reason?
Fundamentals
For the period reported, Airbnb generated $1.587B (+36%) in operating cash flow. The firm spent just $6M on property and equipment, leaving the firm with free cash flow of $1.581M. The firm does not pay a dividend, but did repurchase $493M worth of common stock out of this cash flow.
Turning to the balance sheet, Airbnb ended the quarter with a cash position of $10.594B. That put current assets at $18.869B. Current liabilities add up to $12.212B. That places the firm's current ratio at 1.55. Though healthy, that ratio does not reflect the strength of the actual current situation for this firm as $2.172B worth of those current liabilities are of the unearned fees variety, meaning that these are not financial liabilities at all but liabilities of goods, services or labor owed.
Total assets amount to $20.018B. The firm claims just $682M in goodwill and other intangibles. No problem there. Total liabilities less equity comes to $14.727B. This includes $1.988B in long-term debt, which is something the firm could pay off several times over out of pocket. This balance sheet is very strong and this firm has become a free cash flow beast. On that note, the firm's Board did authorize a new share repurchase program of up to $2.5B. Maybe they should dish out a cash dividend.
Wall Street
I have only come across seven sell-side analysts that since this release have both opined on ABNB and are rated at four stars or better by TipRanks. Across those seven, there is one "buy" rating (who cut his target price), four "hold" of hold-equivalent ratings, and two "sell" or sell-equivalent ratings. One of the "holds" did not set a target price, so we are left working with six targets.
Across these six analysts, the average target price now stands at $113.17 with a high of $145 (Michael Graham of Canaccord Genuity) and a low of $95 (Brian Nowak of Morgan Stanley). Omitting these two as potential outliers, leaves the average of the other four at $109.75.
My Thoughts
So, you see. A nice quarter coupled with mediocre at best guidance. Wall Street is certainly not impressed. The Board probably could have impressed some of their own shareholders if they had directed some of that fat free cash flow toward a dividend and a little less toward the repurchase of common stock. I would be a little shy in deploying capital toward this name right now. Part of that is definitely the guidance. The rest is technical. Let me show you.
Since rallying off of the late 2022 lows in what I mistook for a cup with handle at the time, the shares have developed a basing period of consolidation that has been in place since late January. The stock has already surrendered its 21 day EMA (exponential moving average) and 50 day SMA (simple moving average). This morning, ABNB is wrestling with its 200 day SMA. Holding that line is so very crucial.
Lose the 200 day line and portfolio managers will be forced by their risk managers to cut exposure. That puts the lows of early April and mid-February in play. If I were long 100 shares of ABNB, I would seriously consider purchasing protection in the way of a June 16th $105 put. That would cost the investor about $2.50 today. The same investor could then sell a covered call (June 26 $120) for more than $3 to pay for the put and then some.
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May 10, 2023 at 10:15PM
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Airbnb Is a Cash Flow Beast, But Investors Need to Be Careful - RealMoney
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