What happened
Shares of Airbnb (ABNB 1.09%) stock soared 25% in July, according to data provided by S&P Global Market Intelligence. The powerhouse travel company didn't report any significant news in July, but it was lifted along with the broader market as spending stayed strong. Investors may have seen its huge stock price decline as an opportunity considering the company's strong performance. The stock also may have increased as the market anticipated a strong second-quarter earnings report, which indeed came out yesterday.
So what
Airbnb has made a significant recovery from pandemic-induced declines and has posted several (not consecutive) quarters of net profits. It's no longer a tech upstart bleeding cash, but rather an efficient, revenue-generating travel disruptor.
In the second quarter, revenue increased 58% year over year to $2.1 billion. Airbnb posted net income of $379 million, the company's first-ever second quarter of profits. At a time when inflation is causing customers to cut back spending in certain areas, but when people are still itching to get back to travel after long periods of travel restrictions, Airbnb is enjoying the travel rebound. It is well equipped to handle strong demand with a huge assortment of global vacation rentals that meet different criteria. Even as urban stays made a comeback for the second quarter in a row, non-urban listings increased by 50%. Long-term stays, or those 28 days or longer, continue to be the company's fastest-growing category. These trends point to Airbnb being far from a typical travel company and to all sorts of growth opportunities that traditional travel companies can't match.
Airbnb stock plunged along with the broader market earlier this year despite the company pumping out great numbers over several quarters. Its pricey valuation was a liability in a market that began to dispense with highly valued tech stocks and move toward secure stocks. The S&P 500 rose 9% in July, and investors are recognizing Airbnb's opportunity.
Now what
Airbnb stock is still down 30% this year. Shares are trading at 43 times forward one-year earnings, which is still expensive, but way lower than the more than 150 times forward earnings multiple it was sporting just a few months ago.
Management gave a tepid third-quarter outlook despite July 4 being its highest-ever one day of revenue. It expects nights and experiences booked to stay at around 25% year-over-year growth, same as the second quarter. Revenue is expected to increase 24% to 29%. Still, Airbnb's stock price rose almost 5% following the earnings report.
Airbnb has a ton of potential as it pinpoints new areas of growth and shifts to meet demand. Having started to post profits and come down in valuation, it looks more compelling.
