Airbnb (ABNB 0.10%) dropped a bombshell in its first-quarter earnings call Tuesday afternoon: The rental specialist will be integrating OpenAI's ChatGPT into its platform. Generative artificial intelligence (AI) technologies are already changing the world, and now the company is teaming up with the current clear-cut leader in the space.
According to CEO Brian Chesky, Airbnb will be building OpenAI's GPT-4 software into its interface, and users should start to see some big changes in the company's app starting next year. Chesky also says he believes that artificial intelligence tools could make the company's employees significantly more efficient. Should investors be loading up on the travel and hospitality leader's stock in the leadup to the company's big new AI push?
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ChatGPT could radically change Airbnb
When it's time for quarterly conference calls these days, it's almost a foregone conclusion that tech CEOs will discuss what they're doing in the AI space. While Airbnb's rental platform might not immediately seem like it's in need of a dramatic, AI-driven revamp, emerging generative artificial intelligence technologies will likely have transformative impacts on almost every industry under the sun, and it's not shocking that the company is making some big moves in the space. However, Chesky did share some surprising details about the ChatGPT partnership and his outlook on the tech.
When OpenAI launched plug-in features allowing ChatGPT to be incorporated into other applications, Airbnb was originally positioned to be one of the AI specialist's launch partners. However, Chesky ultimately decided that it wasn't the right fit for Airbnb's streamlined, simplified user interface and wound up choosing not to integrate the ChatGPT plugin. Now, his company is moving forward with a much bigger AI focus, and it could radically reshape Airbnb in some key ways.
Chesky expects that Airbnb will be changing in some key ways. At the heart of this is a shift from asking users where and when they are traveling to building an experience that's built around a multi-faceted user profile. The CEO sees the new user experience being built around questions of "who are you, and what do you want?" and fostering Airbnb's role as the ultimate host in the global travel community.
All in all, the company's artificial intelligence focus seems like a bullish signal for the stock. Check out this quote where Chesky broadly summarizes the company's opportunity with AI:
So, all of this is to say I'm really excited on the short term and the long term. And the last thing I'll just say is I think the companies that will most benefit from the shift of AI are going to be the companies that have the most innovative cultures. You know, that's kind of what happened in the 90s with the internet. And if the last couple of years is any indication, having launched over 340 features innovations, I think we're definitely going to be right at the forefront of this revolution.
Since its founding in 2008, Airbnb has proven itself to be remarkably forward-thinking and nimble. The last few years in particular have highlighted just how flexible the company can be, with the rental specialist deftly navigating challenges created by the pandemic and emerging from a slew of headwinds stronger than ever before. With the company now betting big on AI, Airbnb is once again making smart moves that should bolster its market opportunities.
AI isn't the only reason to buy Airbnb
Airbnb's revenue grew roughly 20% year over year in the first quarter to reach $1.82 billion, and the company posted earnings per share of $0.18 in the period. Meanwhile, the average analyst estimate had guided for per-share earnings of $0.09 on revenue of $1.79 billion.
On the other hand, Wall Street was disappointed with the company's guidance, and investors sent the stock tumbling following the earnings report. With its outlook calling for sales between $2.35 billion and $2.45 billion in Q2, management's midpoint guidance calls for revenue growth of roughly 14%. The market seems fixated on softer guidance for the current quarter, but the Q1 results were fantastic, and the business appears to be in great shape.
Airbnb's free cash flow rose 32% year over year in Q1 to reach $1.6 billion. The company's best-ever FCF performance brought its trailing-twelve-month free cash flow to $3.8 billion -- a figure that represents 44% of sales across the stretch. That's an incredibly strong FCF margin, and Airbnb stock looks cheap at current prices.
Take advantage of this buying window
Values at roughly $71 billion, Airbnb now trades at less than 19 times trailing FCF. Even with signs that momentum for sales expansion will slow in the near term, this is still a company that's very much in growth mode, and it's not even close to maxing out its potential. With the business at the outset of a big opportunity in AI and already posting best-ever results, the recent pullback for the stock looks like a great buying opportunity.
