Airbnb (ABNB 1.17%) reported another solid round of quarterly earnings results recently, but the market was looking for a stronger outlook for growth in this challenging economic environment. The stock dropped 17% following its first-quarter earnings report on May 9.
The main problem is that travelers are becoming more price sensitive. This is evident in Airbnb's second-quarter revenue guidance, which implies year-over-year growth between 12% and 16%, following growth of 20% in the first quarter. Growth is slowing faster than Wall Street analysts expected, and that's why the stock is down.
However, the post-earnings volatility shouldn't scare long-term investors. There are two catalysts that justify buying this travel stock on the dip.
1. Airbnb Rooms could widen the customer base
Airbnb is now generating twice as much revenue as it did before the pandemic. That has swelled profits and cash flow, providing more capital to improve all aspects of the rental platform. One of the recent upgrades that could grow into a huge opportunity over the long term is Airbnb Rooms.
The company expects a strong summer travel season, but many travelers can't afford it because of inflation. Airbnb Rooms is the company's answer to bring prices down. The company advertises that more than 80% of the rooms available to rent cost less than $100 per night.
The catch is that the guest stays in someone else's home. That means actually staying with a stranger, which is not going to be everyone's cup of tea.
However, the early response to Airbnb Rooms and other features the company rolled out is driving record press coverage for the brand.
"If we are successful, I think this is going to bring in a whole new cohort of younger travelers, people that maybe weren't inclined to travel may now be able to travel and hopefully should lift the overall marketplace for Airbnb," CEO Brian Chesky said on the earnings call.
It's early but offering affordable options for travel could significantly boost demand and lift Airbnb's brand value more than Wall Street realizes.
The key takeaway is that Airbnb is continually investing in new platform updates and listening to feedback from its customers. This should pay off over time for patient investors.
2. International travel is ready to explode
Despite the negative reaction to the recent earnings report, Airbnb's growth has been impressive coming out of the pandemic. If you hold a portfolio of top consumer brands delivering high revenue growth over many years, you're going to do well.
That said, the recovery still happening in Asia means that Airbnb is not at full strength. Here's what Chesky had to say on the first-quarter earnings call:
We think there's a huge opportunity in Asia. We are massively underpenetrated. This is going to be probably the fastest-growing market internationally over the next five years.
As Chesky also noted, Airbnb is very popular with young travelers, and Asia is full of them. The Asia-Pacific region is still in recovery mode, but Airbnb reported nights booked in the region grew more than 40% year over year last quarter. As China's appetite for outbound travel opens up, Airbnb could see a long stretch of strong growth for many years.
China outbound tourism is estimated to reach $184 billion in 2024 and grow 14% per year through 2032, according to Future Market Insights. As a leading brand, Airbnb's outbound China business should be able to grow faster than that estimate. Airbnb is very profitable, generating a healthy 23% profit margin. It's got the financial resources to innovate and capture these opportunities.
It's for these reasons the stock remains a solid investment.
