Unsurprisingly, Airbnb (ABNB 2.77%) was decimated by the COVID-19 pandemic as travel restrictions hurt consumer mobility. However, the company's latest financial results were extremely positive. And investors are now hoping for the good times with this growth tech stock to continue.
Although Airbnb shares are up 32% so far this year, as investor optimism is on its way up, they are still 48% off their all-time high set in February 2021. What's in store going forward? Can Airbnb stock fully recover in 2023? Let's take a closer look.
The momentum is strong
After being thumped by the coronavirus pandemic in 2020, Airbnb looks to be firing on all cylinders right now. Its 2022 fourth-quarter revenue of $1.9 billion and diluted earnings per share (EPS) of $0.48 were up 24% and 500%, respectively, on a year-over-year basis. And both of these figures exceeded what Wall Street was looking for. Therefore, it's not a surprise that the stock popped immediately following the announcement.
The full-year numbers were fantastic, too. 2022 was the first time that Airbnb was profitable for an entire fiscal year. According to generally accepted accounting principles (GAAP), Airbnb registered net income during the 12 months of $1.9 billion. The business is also generating tons of cash, to the tune of $455 million of free cash flow (FCF) in Q4. For all of 2022, Airbnb produced $3.4 billion of FCF for an insane margin of 41%.
The strong financial performance was bolstered by some key trends highlighted by the management team. Nights and experiences booked increased 20% year over year in Q4. Cross-border, urban, and long-term stays also showed outstanding growth. And Airbnb's platform continues to expand as it now has 16% more active listings (or 900,000 more) than a year ago. To summarize, demand for travel is robust right now. And the intention for hosts to join Airbnb is also trending up.
A near-term catalyst for Airbnb is the ongoing recovery of the Asia-Pacific region, which saw nights and experiences booked increase 40% versus bookings in Q4 2021. With its heavy reliance on cross-border travel, Asia-Pacific was decimated because of the health crisis. The easing of travel restrictions and reopening of China will help provide a boost.
This strong performance last quarter and for the full year of 2022 comes amid what has been a very unfavorable macroeconomic backdrop. With inflation at levels not seen in decades driving interest rates higher at a rapid pace, the fear of a recession has been elevated. And yet, Airbnb's impressive results showed that there is much demand for travel right now. This is clearly an encouraging development for shareholders.
Compare valuation and growth
As of this writing, Airbnb shares are down about 22% from their price at the initial public offering (IPO) despite climbing 32% so far in 2023. And the stock is currently trading at a price-to-earnings (P/E) multiple of 40. This is significantly below the stock's historical average P/E ratio of 65, but it is more expensive than rivals Booking Holdings and Expedia.
But if you're willing to pay that premium valuation for Airbnb shares right now, you'd get the chance to own the clear market leader in the alternative accommodations industry. Airbnb's rapid rise to prominence has resulted in its name being used as a verb, which all but solidifies its place in consumers' minds. This is a powerful position to be in, especially in an economy that favors major internet-based brands. This situation bodes well for Airbnb's long-term relevance.
Wall Street is certainly optimistic about Airbnb's prospects. Analysts expect the business to post year-over-year revenue and diluted EPS growth of 14.3% and 22%, respectively, in 2023. And if we zoom out, the takeaway is the same. Between 2022 and 2027, consensus analyst estimates call for sales to rise at a compound annual rate of 14.3%, with diluted EPS increasing at a 20.6% clip. This positive outlook makes the current valuation look more compelling.
Airbnb definitely has some momentum on its side as consumer spending shifts from physical goods that were popular throughout the pandemic to services, entertainment, and travel -- purchases that were largely delayed. And while this tailwind might not be enough for the stock to reach its peak again by the end of this year, it's a real possibility that shares will continue their bullish run as we look toward the rest of 2023.
