Airbnb (ABNB -1.68%) delivered another round of strong growth Tuesday night, topping estimates on the top and bottom lines.
The home-sharing giant's revenue rose 29%, or 36% in constant currency, to $2.9 billion, ahead of expectations at $2.84 billion. On the bottom line, earnings per share jumped 47% to $1.79, breezing past the consensus at $1.47.
Other key metrics, including nights booked and gross booking value, were impressive as well, but the stock still fell 6% in the after-hours session.
Investors seemed to balk at Airbnb's fourth-quarter guidance even though it was in line with expectations. The company called for revenue to increase between 17% to 23% in the fourth quarter (23% to 29% in constant currency) in range of $1.8 billion to $1.88 billion, compared with the consensus at $1.85 billion. It also forecast adjusted EBITDA to grow by the same rate or better.
While that doesn't seem to be cause for alarm, Airbnb is seen as a pricey stock, and its growth rate is clearly decelerating.
The travel recovery is slowing
What's clear from Airbnb's results and its guidance is that the breakout growth that began last year, when COVID vaccines became available and travel restrictions were lifted, is starting to fade. Its revenue growth rate in the third quarter was its slowest since Q1 2021, and the fourth quarter will be even slower.
Investors shouldn't be surprised by the slowdown. The entire travel industry has boomed over the past year in the economic reopening, and those tailwinds were eventually going to fade, especially as recession concerns are sweeping much of the globe.
In that context, Airbnb's deceleration doesn't seem particularly concerning. Rivals such as Booking Holdings and Expedia have yet to report third-quarter earnings, and their guidance should be informative for overall travel trends. The two leading online travel agencies are likely to forecast a similar deceleration into the fourth quarter.
What it means for the growth story
Wall Street doesn't really know how to estimate Airbnb's long-run growth rate. It's a unique business without any true publicly traded peer, and it has steadily disrupted the travel industry since its founding in 2008. The company is penetrating an addressable market worth more than $1 trillion, and there's a lot of noise in the travel industry these days around factors such as the pandemic, remote work, and the macro economy.
While analysts were underwhelmed with the company's fourth-quarter guidance, one data point shows why the company could be approaching a long-term growth rate. The guidance calls for revenue to grow between 62% to 70% from Q4 2019, the last comparable period before the pandemic, which represents a compound annual growth rate of 18% over the past three years, only slightly below the year-over-year forecast.
If Airbnb was able to grow revenue 18% a year while overcoming a global pandemic, it's not unreasonable to expect it be able to grow in the high-teen or 20% range for the foreseeable future, especially considering the tailwinds in remote work, long-term stays, and stays in non-urban locations. Airbnb also said supply growth in the third quarter accelerated to 15%, a sign that the platform continues to attract new hosts. Wall Street, meanwhile, is calling for just 15% revenue growth next year, indicating that it expects growth to continue to decelerate.
What Wall Street is missing
Analysts seem likely to dial down their growth forecasts after the quarter, but even with modest growth, the stock offers good value. On a metric like price-to-sales, Airbnb might be modestly expensive, trading at a multiple of 8, but the company has become highly profitable, with wide margins in both GAAP net income and free cash flow.
The stock now trades at a price-to-earnings ratio of just 40 based on GAAP earnings, and just 20 based on trailing free cash flow of $3.3 billion. Those ratios are even lower when you back out the $7.6 billion in net cash it has on the balance sheet.
At that kind of valuation, Airbnb needs to deliver only modest growth to outperform, but the company has no intention of slowing down. On the earnings call, CEO Brian Chesky touted a product update coming later this month that will make it easier for hosts to start hosting on the platform and make pricing more transparent, a frequent complaint about the site.
As the travel market evolves, Airbnb will continue to gain market share from hotels and online travel agencies, and with just single-digit market share in the lodging industry today, the company still has a long growth path in front of it.
Given its long-term potential, selling the stock on the fourth-quarter guidance looks shortsighted. Investors should take advantage of the buying opportunity.