Airbnb Continues to See Industry-Leading Demand in Q2

Narrow-moat Airbnb ABNB saw stout second-quarter demand and profit improvement, aided by continued strength in the U.S., flexible working, and a broadening of travel to regions like Europe. Specifically, bookings reached 137% of 2019′s level, up from 104% in the prior quarter. Bookings were driven by rates that were 138% of the prepandemic level, with room nights reaching 99% of 2019′s level. Rates have been pushed higher by a travel mix of U.S. and larger home bookings. This driver should moderate as travel broadens out to other regions like Europe and if traveler flexibility is reduced by return to work. Looking at the rest of 2021, Airbnb commented it was starting to see some increased cancellation rates and slowdowns in booking volume due to pent-up demand already realized and the Delta variant. But we expect demand to remain buoyant. This view is supported by the resilience of U.S. travel demand during the case spikes around the July Fourth, Labor Day, and Thanksgiving holidays in 2020, as well as U.S. hotel and air volumes remaining strong into early August. Airbnb continued to improve greatly upon its inefficient cost structure as a private company. Operating margins were negative 4% (positive 13% when excluding stock compensation), an improvement from the negative 50% (negative 24%) last quarter, as well as the negative 10% in 2019. We think Airbnb is well positioned to see marketing, operational, product development, and general cost efficiencies over the next several years, and still think to can achieve mid-20% and roughly 30% operating and EBITDA margins, respectively, toward the latter half of this decade. We plan to lift our near-term sales and profitability forecasts, while maintaining our intermediate and long-term estimates. As a result, we expect our $84 fair value estimate to lift to around $90 per share. We think the 5% drop in shares after hours is tied to valuation, which remains tough to accommodate, as Airbnb continues to post strong results.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.