Investors were disappointed by Airbnb's (ABNB -0.09%) recent earnings update, but they weren't ready to check out of the stock just yet. The accommodation-rental giant recently outlined strong travel demand heading into the peak summer season, along with slowing growth rates.

Good reasons for buying the stock include its strong and improving profitability, positive cash flow, and huge long-term sales potential. But shares have rallied sharply in 2023, trouncing the wider market's 8% increase and pushing its valuation up.

Let's take a closer look at the prospects for investors considering Airbnb shares following its early 2023 spike.

This is a nice place

The first-quarter update checked a lot of boxes for growth-minded investors. Airbnb reported 24% higher sales after accounting for exchange-rate shifts, beating management's forecast.

Booking volumes are rising, a record number of guests are using its system, and the platform is flexing its financial muscles as well. Airbnb generated $117 million of net income compared to a loss a year ago. Free cash flow was $1.6 billion, up 32% from the prior year. "We had a strong start to 2023," management said in a letter to shareholders.

But it wasn't all good news in this update. Airbnb guests are increasingly concerned about rising prices and the lack of transparency around some fees. These complaints have sparked new pricing displays and an effort by the company to generate more-competitive pricing by hosts.

The outlook

Slowing growth trends are the bigger worry for investors, including from a potential recession. There's no sign of this slump to date, and in fact Airbnb says it expects another strong summer season. Sales should rise by 12% to 16% in the second quarter following a 25% jump a year ago.

Yet, the stock is priced for a long period of market-thumping growth. Airbnb is aiming to make hosting much more mainstream over time, for example, while extending its supply deeper into the apartment niche, which is currently underrepresented. Longer-stay bookings are likely to keep growing faster than the broader business, too.

ABNB Operating Margin (TTM) Chart

ABNB operating margin (TTM), data by YCharts. TTM = trailing 12 months.

Host services will continue expanding, potentially raising the fees that the platform can charge to home and apartment owners. Most Wall Street pros are looking for sales to rise at a low-teen percentage rate for both 2023 and 2024.

The price might be right

Shares are priced at over 8 times annual revenue, which seems reasonable considering Airbnb's earnings potential. While that valuation would likely slip if a recession harms the travel industry in late 2023 and 2024, it could also expand as the company makes its services more mainstream in the U.S, Europe, Latin America, and Asia.

That long runway for growth likely means we're closer to the beginning of Airbnb's expansion than to its end. While 2022 marked its first year of profitability, there should be many more ahead for Airbnb. That's great news for investors who can patiently hold the stock through the sometimes rocky returns that apply to any consumer discretionary business.