Airbnb (ABNB 0.75%) is back in full growth mode. The travel giant recently announced its best-ever quarter for sales and earnings in Q3, which runs through late September.
Those wins weren't enough to change Wall Street's mind about the stock, which is down over 40% so far in 2022. Worries about the future include a potential sharp demand slump in a slowing or contracting global economy next year.
Still, there are some strong signs in Airbnb's latest report that point to market-thumping earnings growth over the long term. Let's look at a few underappreciated aspects of this room- and home-rental business.
1. The platform is efficient
To oversimplify, Airbnb connects hosts with people seeking short-term or long-term accommodations. In that way, the company is like other middleman businesses, such as eBay. It has a similarly "asset light" operating model that shifts inventory and fulfillment risks onto other parties. Most of its revenue comes from the fees it charges to hosts, which currently amount to a steep 19% of bookings. eBay's comparable rate is 12%.
That selling approach helps Airbnb generate unusually high cash flow and profits. Free cash flow in the last year was $3.3 billion, or more than 40% of revenue. Net income last quarter was a blistering 42% of sales. "Our Q3 results," executives said in a shareholder letter, "demonstrate that Airbnb continues to drive growth and profitability at scale."
2. Airbnb isn't like a hotel
The main fear around owning the stock today is that Airbnb's bookings will collapse if a recession develops into 2023. But there are good indications that the business could whether such a slump better than, say, a hotel chain might.
Airbnb isn't simply providing short-term rentals to vacationers, after all. Stays of at least 28 days account for 20% of the business right now, and bookings are increasingly occurring in rural areas outside of popular metropolitan travel.
Although there's no guarantee, it seems likely that some level of increased work flexibility is continuing, following the pandemic. Airbnb is positioned to capitalize on that trend toward more relocations, which have continued even as employees have returned to their offices.
3. New products are coming
Airbnb got its start during the Great Recession as a popular way for people to turn underutilized space into income. That value proposition might become even more attractive in an era of tightening consumer budgets.
That's why the company is starting a big push this month to add supply onto the platform through onboarding services for brand new hosts. These services will join other popular releases, like Airbnb's categories and AirCover services.
A steady flow of improvements like these will help support growth in the volume of both hosts and guests. They will also help the company maintain or expand the fees it charges hosts as a percentage of the booking price.
While the business would be hit hard by a recession, especially on a global scale, Airbnb might also benefit from an increasing supply on its platform as consumer budgets tighten. As a result, investors might want to consider adding this growth stock to their watchlists.
