Airbnb beat Wall Street estimates for earnings and posted revenue up 58% from a year ago. Gross bookings for the lodging-booking company. Rose 27% YoY, which was 73% higher than the pre-pandemic 2019 quarter. Airbnb expects third-quarter revenue between $2.78 billion to $2.88 billion, which it expects to be its highest yet. Doug Astrop, Managing Partner at Exponential Investment Partners, breaks down why the stock is lower and the global challenges facing Airbnb.

Opening Bell

Airbnb Stock Slumps Despite Record-breaking Bookings

here to discuss is dug a stroke. A managing partner at exponential investment partners. Doug Airbnb said it had its first profitable second quarter as a public company noting that july 4th that weekend, was it single highest revenue day ever on headline. What is your reaction to Airbnb is results? Well, great to see you Alicia, we thought that the quarter was very strong and we're kind of surprised the stock has sold off the way it has. Um, as you mentioned, they had a 58% revenue increase year over year. But for us, the big impressive part of their report was the earnings, I mean, they, by our estimates, they beat earnings expectations by about 30%. So they've really been working on the profitability of the company and they really delivered in the, in the second quarter. On that their operating margins actually doubled from the previous quarter. So they're really showing that this business can be really profitable and that was what impressed us the most. Probably even more than the revenue growth was the profitability. I do agree the reaction from investors, a little bit surprising, especially on headlines and some of the key metrics. I look at bookings right where guest stays in a home for 28 days or more? That remains Airbnb fastest growing segment, 25% growth year over year for the quarter. What is that signal about the long term stay movement, especially on the backs of this hybrid work environment. That is the new normal, right? That is their biggest growth engine right now. And yeah, you know that's a tricky one because we're all kind of wondering how this hybrid work situation is gonna pan out going forward. The pandemic was a big factor and kind of launching this movement of hybrid work and you know, no one's quite sure whether that's a permanent condition or something that will revert to the old ways of going to the office every day. It seems like it's, it's kind of become a permanent condition because workers really value that ability to work from home at least part of the time and have a more flexible work work life balance is really important. And you know, studies have shown that that's really very, very valuable to workers. So this seems to be maybe a new normal, as you pointed out that this hybrid not going into the office every day, but maybe there are a couple of days a week, that seems to be a permanent condition and Airbnb can, can help meet some of those needs potentially with, with these longer stays. So that's, that's probably going to be an increasingly big part of the business we think, You know, from, from bookings and in those long term stays to even something like free cash flow for the company, the company reported in the second quarter, 795 million, its highest for a second quarter. And that brings total cash to nearly $10 billion. With that in mind. Do you think Airbnb has a strong enough balance sheet to withstand? Let's say a scenario where there is a drop in bookings due to higher prices as we come across kind of these persistent inflationary pressures and we know that's that's less pressure on the travel sector but at some point it will start to trickle there. Yeah, we think they're they're well positioned with their balance sheet. They don't have a lot of debt and they have great operating margins and so they've got great cash flow. They expect to be profitable for the full year this year for the first time. So we think they're they're doing great on all their operating metrics and are well positioned to become profitable and uh you know withstand any any potential landmines down the road. Um They're also working hard to you know, improve the experience for both the host and the guests they put in a new cancelation policy where they're going to actually charge hosts who cancel indiscriminately on their travelers. So they're working hard to really make this a great experience and a indispensable part of travel for for travelers worldwide To that point. Even the changes that they're making. I wonder again, we look at the stock and we know um you know, year to date, I think it's down pretty significantly I think of somewhere around 30% year to date. And even now, you know amid um this earnings report that seems mostly positive. I mean their balance sheet seems strong, their revenue seems strong even though it missed expectations of the street. It certainly was in line with what the company was kind of guiding. There are some concerns that there are headwinds here for the company. It may be some of those changes, it may be the inflationary pressures. But again, we think their balance sheet is strong enough to withstand that. So what's the downside here? What are the other headwinds that the market is pricing in right now? Well, it seems like the market is is pricing in a little bit of a disappointment in uh projected growth for the third quarter, which is their their biggest quarter every year. That's the big travel season. And I think there was a little disappointment over the bookings that were expected. They were a little lower maybe, but but then the cost went up, the prices went up because of inflation. So the numbers looked looked okay and kind of in line with expectations. But underneath they're, the bookings maybe were a little softer and some of that's probably due to flight cancelations and maybe some of the inflationary pressures. But but you know, the third quarter is looking very strong. I mean they're expecting similar growth to this quarter. So we're we're not disappointed with that. We thought it was pretty close to expectations and we, we think this sell off is kind of an overreaction and it might be a good buying opportunity. I mean this is a transformative company. It's a lot like Uber, where they've kind of transformed an industry and their runway for growth is just unlimited really. So it's a great time to get in on this type of a company that really has incredible growth prospects ahead. Speaking of Airbnb as an opportunity, the company itself certainly thinks that, you know, its own stock is an opportunity, right? They announced a $2 billion dollar stock buyback trying to signal to the market that they are under valued at the moment. Um, talk about that a little bit in terms of what that, that that buyback program is trying to signal and, and if there is real credence there to, to this company being undervalued at the moment. Yeah, I think that signals a real confidence in the business and um, it shows that they're willing to buy their stock even if investors might be a little nervous about it right now. Um, you know, we think the stock may this drop may reverse today or at least it as the day goes on. You know, the after hours trading is always a little different than the, than the market our trading, you know, it's off often exaggerated in one way or the other and doesn't really end up reflecting the true sentiment. So we, we think this, this gap might close a bit today if, if not completely. And as investors digest the earnings report. I think people realize there's real value here. You know, I think it trades for about a 35 forward price to earnings multiple, which given their growth is not, is not prohibitively expensive at all. So we think this is a good time to start maybe dipping into some Airbnb shares and you know, you've got a great growth runway ahead of you and should do very well in the long term before I have to let you go. You know, we think of Air B and oftentimes we think of here in the US, but obviously, you know, they have homes and, and and stays, you know, beyond our borders. Airbnb saw year over year growth in june in all regions except for china though, the company has actually pulled all of its listings because of the difficulties of doing business there. Now, I wonder if you see that as a mistake or as a reality of the time, especially given that china as a region is a huge growth opportunity. You know, not only for Airbnb but for most companies. Um, and again on the flip side of that again is just the reality of the time and should they invest their time more in europe and north America and the greater potential there. Yeah, it seems like they made a tough call there, but probably a smart one because the current conditions were just too tough. And so we look at that as a positive because they're really being proactive and they're being very smart with their resources and they can always come back around to that market if they feel things have changed. But probably a smart move to kind of be a little bit more conservative in this environment because you know, the market's really valuing profitability these days. It's not all about growth anymore, it's about earnings and profitability and not growth at any cost. So I think they're they're they've adapted to the times and they've they they're operating the way they should in this type of environment where profitability and earnings are crucial for companies, even the high growth companies. Yeah, we've certainly seen that appetite shift in the broader kind of market. Doug really appreciate your time and your insight dug a strap managing partner at Exponential Investment Partners.