Airbnb (ABNB -0.96%) investors had a difficult 2022. Despite a complete rebound for its bookings business, shares fell nearly 50% through late December on fears of an impending slowdown ahead. Wall Street is concerned that a recession could seriously dent demand for vacation and business travel.
Airbnb isn't showing any signs of that slump yet, and in fact it recently booked its best quarter yet for sales and net income. So, let's take a look at the company's prospects for posting a much better 2023 when it comes to shareholder returns.
Modest growth
There is an unusually wide range of potential growth outcomes ahead for the business in the next year. On the bright side, Airbnb could post strong sales gains consistent with its past few quarters if the economy doesn't slow down sharply.
Revenue was up an impressive 25% through September, after all. If travelers continue prioritizing trips, especially of longer durations, then sales growth might not slow much from the 40% rate that Wall Street pros are expecting for the full 2022 year.
However, it appears likely that revenue gains will slow more dramatically as consumer spending rates decline. Wall Street analysts have been downgrading travel stocks like Airbnb, TripAdvisor, and Expedia in response to the rising prospects of a recession ahead in 2023.
The financial outlook
Assuming no huge change in the economy, though, Airbnb's financial strength doesn't seem likely to be seriously threatened. The company is solidly profitable, having generated $1.2 billion in earnings in the most recent quarter and just under $1 billion in free cash flow.
Yes, those trends would be hurt by a recession. But Airbnb deserves credit for boosting profitability despite some major pressures including currency exchange rate swings, soaring costs, and spotty demand in a few markets.
"Our Q3 results demonstrate that Airbnb continues to drive growth and profitability at scale," executives said in an early November earnings report. That announcement showed that the company had generated $3.3 billion of free cash flow in the previous 12 months, or an impressive 40% of sales.
Rocky results ahead
That positive momentum seems sure to be challenged over the short term as vacation travel is pinched by slowing economic growth. But Airbnb has some control over its growth opportunities, including through its recent initiative aimed at boosting the supply of available homes on its platform.
The service was popular among people looking for extra income during the last sharp economic pullback in 2008, and the company has a good shot at repeating that success if another recession hits in 2023.
Short-term forecasts aside, Airbnb today has many attractive characteristics that should have investors feeling excited about its big-picture prospects. The stock's performance in 2023 will depend in part on where we are in the economic growth cycle by late in the year.
But Airbnb's solid sales momentum and strong cash flow suggest that shareholders have an excellent chance to see good returns by holding the stock even through continued volatility over the next few quarters.
