What happened
Airbnb (ABNB -0.50%) investors were seeing red early Wednesday. The rental platform's stock was down 11% by 11:15 a.m. ET, compared to a modest uptick for the S&P 500. The slump only erased a small portion of shareholders' recent gains, though. Airbnb is up over 30% so far in 2023 compared to a 7% increase in the wider market.
Wednesday's decline was sparked by the company's first-quarter earnings update.
So what
Airbnb said before the market opened that sales grew 20% to $1.8 billion for the first quarter. That result put revenue right within the outlook range that management issued back in February, calling for growth between 16% and 21%. Executives said travel demand remains elevated in early 2023, citing a 25% increase in its backlog of bookings. "We had a strong start to 2023," management said in a letter to shareholders.
Airbnb also continued to flex its financial muscles. Net income grew to $151 million from a loss in the prior-year period. Cash flow was $1.6 billion, up 32%. Yet investors were more focused on the company's short-term outlook calling for weaker sales and earnings results in Q2.
Now what
Airbnb is predicting lower profitability in the second quarter, mainly thanks to rising marketing costs. This extra spending is due to management's decision to pull forward some advertising costs in hopes of boosting marketing efficiency. Yet it will pressure earnings in the short term.
Executives also see revenue growth slowing to between 12% and 16% in Q2, translating into sales of between $2.35 billion and $2.45 billion. The deceleration is partly due to soaring sales a year ago as people prioritized travel following pandemic-related social distancing efforts.
Airbnb's demand trends remain strong, and it is generating excellent profits today. While the stock is likely to be volatile given its high valuation, today's earnings update doesn't challenge the fundamental investing thesis for this growth stock.
