Airbnb (ABNB 0.74%) stock dropped 5% during after-hours trading on Nov. 1 following its third-quarter earnings report. Revenue for the operator of the short-term rental platform rose 29% year over year (or 36% in constant currency terms) to $2.88 billion, which beat analysts' estimates by $30 million. Its net income increased 46% to $1.21 billion, or $1.79 per share, which also cleared the consensus forecast by $0.33.

Airbnb's headline numbers were impressive, but a few hints of slower growth in the fourth quarter and beyond rattled the bulls. Should investors ignore that short-term noise and still buy the stock as a long-term investment?

An Airbnb host greets a guest.

Image source: Airbnb.

How fast is Airbnb growing?

Airbnb says booked nights and experiences rose 25% year over year to 99.7 million during the third quarter with "strength in all regions." Its gross booking volume (GBV) increased 31% to $15.6 billion (40% on a constant currency basis), driven by higher average daily rates.

Growth cooled off slightly relative to its robust post-pandemic recovery last year, but it continues to expand at an impressive rate.

Metric

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Nights and experiences growth YOY

29%

59%

59%

25%

25%

GBV growth YOY

48%

91%

67%

27%

31%

Revenue growth YOY

67%

78%

70%

58%

29%

Data source: Airbnb. YOY = year over year; GBV = gross booking value.

For the fourth quarter, Airbnb expects its revenue to rise in a range of 17% to 23% year over year (23% to 29% in constant currency terms). It also says it expects growth in booked nights and experiences to "moderate slightly" relative to the third quarter, while its growth in average daily rates will "face some pressure from [foreign exchange] headwinds and business mix."

It also noted that as the impact of the pandemic recedes, macroeconomic conditions persist and it expects to experience a "continued, albeit choppy, recovery of cross-border travel" over the next few quarters. Those cautious comments seemingly rattled investors who had expected a more-confident forecast and more-stable growth rates.

How profitable is Airbnb?

On the bottom line, Airbnb turned in its most profitable quarter ever, both in terms of generally accepted accounting principles (GAAP) and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

Metric

Q3 2021

Q4 2021

Q1 2022

Q2 2022

Q3 2022

Net income (loss)

$834 million

$55 million

($19 million)

$379 million

$1.21 billion

Adjusted EBITDA 

$1.1 billion

$333 million

$229 million

$711 million

$1.46 billion

Adjusted EBITDA margin

49%

22%

15%

34%

51%

Data source: Airbnb.

Airbnb didn't provide exact profit guidance for the fourth quarter, but it expects its adjusted EBITDA to be "up meaningfully on a nominal basis" year over year, and for its adjusted EBITDA margin to be "in-line to modestly higher."

Those comments indicate that just like last year, Airbnb's net income and adjusted EBITDA will decline sequentially in the fourth quarter. That isn't surprising at all, since the third quarter is traditionally its strongest seasonal quarter for check-ins because it includes the entire summer.

Is Airbnb still resistant to the macro headwinds?

The company is recession-resistant for two reasons: Budget-conscious travelers will generally gravitate toward cheaper Airbnb rentals instead of hotels, while hosts will rent out their properties more aggressively to generate more supplemental income.

During the third-quarter earnings call, chief financial officer Dave Stephenson said Airbnb was "doing incredibly well despite the macroeconomic environment," and that it was still "seeing stable to increasing demand across the globe" relative to its pre-pandemic levels.

But is Airbnb's stock a bargain at these prices?

Analysts expect Airbnb's revenue to rise 39% this year, then grow 15% to $9.5 billion in 2023. They expect its adjusted EBITDA to increase 74% this year, then climb 13% to $3.1 billion in 2023. Its GAAP earnings should also stay positive this year, compared to a net loss in 2021, and grow 19% in 2023.

We should take those estimates with a grain of salt, but they imply that Airbnb currently trades at 41 times next year's earnings. By comparison, Expedia (EXPE -0.99%) and Booking Holdings (BKNG 1.09%) -- which both benefited from the same post-pandemic travel tailwinds as Airbnb -- trade at just 11 and 16 times forward earnings, respectively.

Expedia and Booking Holdings both provide a wider range of online travel services than Airbnb, but they've also expanded into Airbnb's backyard with their own short-term rental services.

Both online travel giants have been growing at a comparable rate to Airbnb, so it seems like investors are more willing to pay a premium for Airbnb's simpler business model, its long-term growth potential, and the notion that it's better insulated from inflation than traditional online travel agencies.

I believe Airbnb is still a promising long-term investment, but its premium valuation might cap its upside potential over the next few quarters. Investors can accumulate some shares after its latest post-earnings decline, but they shouldn't be surprised if it gets even cheaper before it bounces back.