Airbnb, Inc. (NASDAQ:ABNB) attracted a major post-earnings shopping for frenzy although the temper was somber on the finish of 2022.
Accordingly, Wall Road analysts have been fairly pessimistic about Airbnb’s efficiency pre-earnings, because the consensus value goal (PT) fell to a low of $126.9 in early February.
Furthermore, Morgan Stanley (MS) downgraded ABNB to a Promote score in early December, arguing that its checks indicated “decelerating provide development.”
Subsequently, Airbnb made it a degree to intensify its sturdy listings’ development in 2022, reaching 6.6M international energetic listings, up by 900K for the yr ex-China.
Accordingly, energetic listings elevated by 16% YoY in FQ4 and up 26% in opposition to FQ4’19. As such, CEO Brian Chesky reminded traders in its earnings commentary that Airbnb noticed “great development in provide,” rebutting the thesis put out by the Morgan Stanley workforce.
We highlighted in our earlier December article that “the market has seemingly priced in important pessimism in opposition to Airbnb’s execution dangers.” Subsequently, we aren’t shocked that ABNB surged greater than 50% finally week’s highs since we upgraded it right into a Purchase and likewise exceeded our PT.
As such, we consider it is time to replace traders on whether or not they need to be a part of the momentum spike final week or sit out first for a pullback.
Administration highlighted that it stays in a development part, suggesting that traders mustn’t anticipate a brand new inventory repurchase authorization except for the $500M remaining from its present $2B program.
Therefore, it will likely be essential for traders to evaluate how administration intends to spend the $9.6B in money and equivalents as of FQ4 on new development initiatives to spur development within the medium time period.
It is clear that the corporate is extremely dedicated to driving the enchantment and ease of attracting extra energetic internet hosting onto its platform. Administration highlighted that amongst its core priorities in 2023 embrace “elevating consciousness, making it simpler to get began, and offering higher instruments for hosts.”
As such, the corporate is prepared to proceed investing in its host group by “primarily (giving) away most of (Airbnb’s) product service and innovation to (the hosts).”
Additionally, CFO Dave Stephenson highlighted that the corporate will “preserve sufficient money for potential M&A alternatives, which may exist.” Does that counsel that Airbnb’s natural development cadence may sluggish shifting forward?
There’s little doubt that Airbnb posted a extremely outstanding quarter, beating each traces on income and profitability, whereas delivering a better-than-expected outlook.
Nevertheless, the market shouldn’t be dumb, proper? ABNB has considerably outperformed the market for the reason that finish of 2022 towards its highs final week. Therefore, we consider savvy market operators seemingly used the extremely pessimistic market circumstances in December to load up, anticipating extra sturdy performances from Airbnb in FQ4 and 2023.
Subsequently, we assessed that ABNB’s near- and medium-term optimism was mirrored within the earnings surge. As such, traders have to be extremely cautious in the event that they intend to affix final week’s late shopping for frenzy. Why?
Airbnb expects its common every day fee or ADR to proceed coming beneath strain in 2023 resulting from “growing downward strain from combine shift, in addition to new and improved pricing and discounting instruments.” Therefore, the corporate guided towards an adjusted EBITDA margin that is largely in line for FY22, highlighting a doubtlessly substantial slowdown in adjusted EBITDA development in 2023.
Accordingly, the revised Wall Road consensus estimates point out an adjusted EBITDA margin of 34.7% for FY23, consistent with FY22’s 34.6%. As such, it implies an adjusted EBITDA development of 14.8% for FY23, down from FY22’s 82.2%.
Regardless of that, the corporate is assured in optimizing its OpEx to mitigate the aforementioned ADR headwinds to enhance profitability. Chesky and his workforce have additionally earned their credibility as he accentuated that Airbnb is “one of many few tech corporations that are not doing layoffs.”
As such, the corporate is assured that it has “a protracted checklist of issues to spend money on to drive additional profitability.”
However, with the surge in and subsequent normalization of its valuation, we consider market operators will scrutinize how this “lengthy checklist of issues” will assist to drive its working leverage development past FY24, which is essential for traders contemplating leaping on the bandwagon.
ABNB final traded at an NTM EBITDA a number of of twenty-two.8x, properly above its friends’ median of 13.3x (in line with S&P Cap IQ knowledge).
As such, we consider it seems to be totally valued now, with reward/threat not engaging.
Coupled with draw back dangers resulting from a doubtlessly sharp slowdown in adjusted EBITDA development, we consider it is opportune for traders who adopted our December name to take some publicity off the desk.
Furthermore, ABNB’s value motion is unconstructive and will kind a false upside breakout or bull lure, indicating market operators may use the current spike to chop publicity.
Score: Promote (Revise from Purchase).