The short-term rental and experience company Airbnb (ABNB 0.80%) had high hopes for 2022 with consumers' pent-up demand for travel. However, its stock was roughly cut in half as the company faces macro pressures like worsening foreign exchange rates and weaker consumer confidence that could lead to less revenue in the short term.
Despite those concerns, here are three reasons why there's never been a better time to buy Airbnb.
1. Airbnb is more popular than ever
Whether it's pent-up demand for travel, more people working remotely, or guests desiring more space, Airbnb is more popular than ever. For the third quarter of 2022, Airbnb customers booked 99.7 million nights and experiences, up 25% compared to Q3 2021, generating revenue of $2.9 billion, up 29% from Q3 2021.
As for the fourth quarter of 2022, Airbnb management expects to deliver $1.8 billion to $1.88 billion in revenue. If those sales come to fruition, Airbnb's full-year revenue would be $8.29 billion to $8.35 billion, or an increase of 38.2% to 39.2% compared to 2021.
Like many global companies, Airbnb faces foreign exchange rate challenges, negatively affecting revenue when weaker currencies must be exchanged back to a strong U.S. dollar. In its most recent quarter, management claims foreign exchange rates cost the company over $150 million in revenue alone.
Still, the fact that Airbnb is continually breaking records for guests -- 90 million in its latest quarter -- proves the brand's staying power even amid broader economic headwinds.
2. Valuation and profitability
Despite record revenue and improving financials, Airbnb stock is down roughly 50% over the past year. Its stock looks underpriced compared to its historical price-to-earnings (P/E) ratio -- a common metric used to evaluate public companies. Airbnb most recently traded at a P/E ratio of about 35 -- the lowest since coming public two years ago.
You can't have a P/E ratio without earnings, and Airbnb's earnings are growing. The company recently generated its most profitable Q3 ever, with $1.2 billion in net income. And with four of the last five quarters producing a net income, Airbnb has proven that its business model is maturing enough to sustain profits regularly.
3. Balance sheet and share repurchases
Airbnb has an outstanding balance sheet with nearly $10 billion in cash and liquid assets and only $2 billion in long-term debt. With its firm financial footing, Airbnb likely won't be beholden to unfavorable loans at currently high interest rates as it continually invests in product development, spending over $1 billion in 2022 already.
Another positive that comes with Airbnb's hoard of cash is that the company recently began a $2 billion share repurchase program to offset dilution from its employee stock programs. As a result, Airbnb finally lowered its diluted outstanding shares for the first time since becoming a public company to roughly 680 million for Q3 2022, compared to 684 million for the prior quarter.
Investors generally prefer to see a company's share repurchase program significantly lower its outstanding shares, so each share is worth more over time. But at least Airbnb is aware of its growing share count and has a plan of action to reverse the investor-unfriendly trend.
Is Airbnb a stock to buy today?
With impressive revenue growth and profitability, Airbnb appears to be a reasonably priced growth stock after its 2022 pullback. Investors should monitor whether management can hit or exceed revenue guidance, continue to grow its net income, and keep its outstanding share count low. If Airbnb succeeds in those areas, expect its stock to rally from recent lows in 2023.
