The travel industry is recovering, and companies are expecting to spend nearly as much as they did in 2019. But that doesn't mean it will be smooth sailing for all travel businesses. Airbnb (ABNB 0.68%) is expecting a slowdown on its platform this year and it's also implementing some changes that could impact revenue growth.
Here's a closer look at why investors shouldn't be surprised by some worse results from the company later this year.
Hosts can rent out rooms and more easily offer discounts
Airbnb announced many new features in its most recent shareholder letter that it rolled out in its 2023 Summer Release, which launched on May 3. This includes making the true total cost of a stay more transparent -- a frequent user complaint. Guests in the U.S. and Canada will also be able to pay using Klarna, a buy now, pay later service, to spread their cost out over time.
A significant change is the rollout of new pricing tools for hosts. Using the tools, hosts can more easily add discounts and promotions. Airbnb has also introduced Airbnb Rooms, where people can rent out just a single room, which will drastically improve affordability -- the company says more than 80% of rooms are priced below $100 per night.
Lower price points will improve affordability and could keep more cash-strapped consumers using the platform, but it may also make it more challenging for the company to maintain a strong growth rate. For the period ended March 31, Airbnb's sales totaled $1.8 billion and rose 20% year over year, which is not as impressive as the sales growth it achieved in past quarters.
ABNB Revenue (Quarterly YoY Growth) data by YCharts
In the second quarter, the company is only projecting revenue of up to $2.45 billion, which would put its year-over-year growth rate even lower, at no higher than 16%.And while the company did post a profit this past quarter, investors shouldn't expect that to continue this year.
Last quarter's profit wasn't as impressive as it looked
Airbnb reported a profit of $117 million in Q1 but as the chart below shows, the only reason it managed to stay out of the red was due to a positive change in interest income.
Data source: Company filings. Chart by author.
Airbnb's operating loss totaled $5 million, which was what it reported in the prior-year period as well. If the company's revenue growth slows down and greater discounting results in less profitability per booking, it could make it more difficult for the bottom line to remain in the black.
Should you buy Airbnb stock anyway?
This year, there's a strong likelihood of a recession, and when combined with the pricing tools Airbnb has rolled out to hosts to be more competitive, it can lead to slightly worse profits in the future.
In the long run, it's a good move for Airbnb to provide hosts and guests more flexibility. But given that the company's Q1 numbers weren't as strong as they may have looked, investors should brace for the possibility that Airbnb's growth will not only slow down as the year goes on, but that its bottom line also dips into the red.
For long-term growth investors, Airbnb remains a good buy as it attracts lots of travelers and the demand for travel should strengthen under better economic conditions. However, in the short term, investors should expect a bumpy ride.
