Where Will Airbnb Stock Be in 1 Year?

Airbnb's (ABNB 1.09%) stock price surged 10% during after-hours trading on Feb. 14 after it posted its fourth-quarter earnings report. The short-term rental platform provider's revenue rose 24% year over year (31% in constant currency terms) to $1.9 billion and beat analysts' estimates by $40 million.

Its net income jumped 480% to $319 million, or $0.48 per share, and easily cleared the consensus forecast by $0.21. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) grew 72% on a constant currency basis to $574 million. That marked Airbnb's most profitable fourth quarter ever, and it posted its first annual profit on a generally accepted accounting principles (GAAP) basis for the full year.

Those numbers were impressive, but Airbnb's stock price remains down nearly 30% over the past 12 months. Could it bounce back by the end of 2023?

Image source: Airbnb.

What happened to Airbnb over the past year?

Airbnb's revenue rose 40% to $8.4 billion in 2022, compared to its 77% growth in 2021 and 30% pandemic-induced decline in 2020. Its post-pandemic growth in 2021 set it up for tough year-over-year comparisons throughout 2022. Inflation, a strong dollar, the Ukrainian war, and other macro headwinds exacerbated that pressure. That's why its year-over-year growth in nights and experiences booked, gross booking volume (GBV), and revenue decelerated over the past year. 

Data source: Airbnb. YOY = Year over year.

Airbnb management expects the company's revenue to rise 17%-21% year over year in the first quarter of 2023, which surpassed analysts' expectations for 13% growth. During the latest conference call, CEO Brian Chesky said Airbnb still had a "strong backlog" of bookings as more guests booked trips further in advance, returned to big cities, and took more cross-border trips.

Chesky noted that urban and cross-border travel had represented the "bread and butter" of Airbnb's business prior to the pandemic and that "tough" economic times were still driving more property owners to rent out their properties to generate passive income. CFO Dave Stephenson also said the company was "really pleased" with its earlier bookings for upcoming trips across Europe, and remained "pretty optimistic" regarding the Asian market as China relaxes its zero-COVID policies.

However, its average daily rates (ADR) are still being reduced by a higher mix of shorter-term stays, promotions, and currency headwinds. Those headwinds are expected to persist over the next few quarters, and analysts expect its total revenue to only rise 11% to $9.3 billion for the full year.

Stabilizing its margins as its growth decelerates

As Airbnb's top-line growth cools off, it's reining in its spending and cutting costs to stabilize its margins and profits. That's why it generated a full-year net profit of $1.9 billion in 2022, compared to a net loss of $352 million in 2021. Its adjusted EBITDA also surged 81% to $2.9 billion, which boosted its full-year adjusted EBITDA margin from 27% to 35%.

But in the first quarter of 2023, Airbnb expects its adjusted EBITDA margin to decline "slightly" year over year as its ADR continues to shrink and it ramps up its marketing expenses to attract more customers. But for the full year, it expects its adjusted EBITDA to stay roughly flat relative to 2022 as it alleviates that pressure with other cost-cutting measures.

Analysts expect Airbnb's adjusted EBITDA to rise 8% for the year, but for its adjusted EBITDA margin to dip to 34%. They expect it to remain profitable on a GAAP basis as its net income stays nearly flat at $1.9 billion.

Where will Airbnb's stock be in a year?

With an enterprise value of $67 billion, Airbnb trades at 7 times this year's sales and 21 times its adjusted EBITDA. But Expedia -- which is profiting from the same post-pandemic tailwinds and growing at a similar rate -- trades at just over 1 times this year's sales and 6 times its adjusted EBITDA. Airbnb trades at that premium because it's considered a disruptive company with more growth potential than "traditional" online travel agencies like Expedia.

But if Airbnb's growth continues to decelerate and it loses ground to similar platforms like Expedia's Vrbo or regular hotels, it could easily shed that premium valuation. Therefore, I expect Airbnb's stock to hold steady this year as investors prioritize its stabilizing profits over its slower sales growth, but I don't expect it to outperform the market by the end of this year.