What happened

Shares of Airbnb (ABNB 1.91%) fell 16.6% this past week, according to data provided by S&P Global Market Intelligence, following the release of the short-term rental leader's third-quarter financial results.

So what

Airbnb's revenue surged 29% year over year (YOY) to $2.9 billion. Excluding foreign exchange movements, the rental real estate platform's sales growth would have been an even more impressive 36%. These results surpassed Wall Street's estimates, which had called for revenue of $2.8 billion.

The gains were fueled by a 25% jump in nights and experiences booked to 99.7 million. In turn, Airbnb's gross booking value increased by 31% to $15.6 billion.

The company's profitability also improved. Airbnb's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 32% to $1.5 billion, and its net income leaped 46% to $1.2 billion, or $1.79 per share. That, too, exceeded analysts' estimates, which had called for per-share profits of $1.47.

Investors, however, appeared to focus on Airbnb's guidance. Management expects revenue to grow by 17% to 23% YOY to between $1.80 billion and $1.88 billion in the fourth quarter. Yet the company warned that growth in nights and experiences booked could "moderate slightly" relative to the third quarter and that foreign exchange movements could pressure its average daily rate in its international markets.

Now what 

The sell-off in Airbnb's shares appears overdone. The recent strengthening of the U.S. dollar relative to other currencies will likely reverse over time. Any downturn in the company's international average daily rate should thus prove temporary.

Moreover, Airbnb remains an incredibly profitable business with superb cash flow generation. It posted a 42% net income margin in the fourth quarter. And its $960 million of free cash flow over the past 12 months represents a margin of over 40%. This essentially means that Airbnb converts every dollar of sales into more than $0.40 that it can eventually use to reward shareholders with dividends and stock buybacks. That's impressive -- and rare -- for such a young and rapidly growing business.