This has been a solid year for Airbnb (ABNB 0.75%) investors. Shares of the online vacation rentals marketplace provider have jumped 66% in 2023, despite concerns that the company's growth could hit a speed bump in the short run.
The stock fell big time in May after the company's second-quarter outlook pointed toward slowing growth. However, Airbnb delivered better-than-expected results for Q2 2023 last month, driven by healthy travel demand that led to robust growth in the number of nights and experiences booked on its platform. What's more, the company's third-quarter guidance was better than what Wall Street was looking for.
Does this mean investors who have missed Airbnb's terrific rally this year should consider buying the stock in anticipation of more gains? Let's find out.
Airbnb's growth could outpace expectations
Airbnb's stock price surge seems justified. The company has been taking advantage of a rebound in travel demand, a trend that has allowed it to comprehensively outpace Wall Street's expectations in recent quarters.
Airbnb has beaten analysts' earnings estimates comprehensively in the past four quarters. For instance, it reported non-GAAP earnings of $0.98 per share in Q2, while analysts would have settled for $0.78 per share. Its earnings increased an impressive 75% year over year last quarter. Airbnb's revenue was up 18% year over year to $2.5 billion, ahead of the $2.42 billion consensus estimate.
Airbnb benefited from an 11% year-over-year increase in the number of nights and experiences booked on its platform last quarter to 115.1 million in Q2. Its gross bookings value increased at a slightly faster pace of 13% from the year-ago quarter to $19.1 billion, helped by a small increase of 1% in the average daily rate (ADR) to $166. The ADR is the average rate paid by a guest on a daily basis for the duration of a booking.
Additionally, Airbnb kept tight control on its costs and expenses, which increased at a slower rate than its revenue last quarter. As a result, Airbnb's net margin hit a Q2 high of 26% last quarter and led to terrific growth in its bottom line. More importantly, Airbnb's outlook suggests that its robust growth is here to stay.
The company expects revenue of $3.3 billion to $3.4 billion in the current quarter, which would be a year-over-year jump of 14% to 18%. Wall Street would have been happy with $3.22 billion in revenue from Airbnb. However, don't be surprised to see Airbnb deliver faster growth for two simple reasons.
First, Airbnb is taking advantage of a rebound in international travel. The company witnessed a 16% year-over-year increase in cross-border bookings last quarter, a trend that's likely to continue. Moody's estimates that global air travel demand could increase a solid 22% in 2023, and that could translate into more bookings for the likes of Airbnb.
Second, Airbnb is looking to capitalize on the growth in travel demand by increasing the number of listings on its platform. The company ended Q2 with 7 million total active listings, a 19% jump over the prior-year period and its highest number ever. A larger supply of properties means that the number of nights and experiences that Airbnb is able to book through its hosts is likely to increase.
In all, Airbnb is sitting on favorable business conditions, and it is taking steps to capitalize on them. More importantly, this combination is translating into healthy growth, as we saw last quarter, and analysts expect the trend to continue in the future as well.
ABNB Revenue Estimates for Current Fiscal Year data by YCharts
The stock is built for long-term upside
The global vacation rentals market is expected to generate annual revenue of $315 billion in 2031, compared to just $91 billion in 2021. So, Airbnb's addressable market is going to expand big time over the next decade, and the good part is that the company is setting itself up to take advantage of it, as the discussion above indicates.
Not surprisingly, analysts are anticipating Airbnb's earnings to increase at an annual rate of 22% for the next five years. Using the company's estimated 2023 earnings of $3.78 per share as the base, Airbnb's bottom line could jump to $10.21 per share after five years. Airbnb is trading at 35 times forward earnings right now. Assuming it can maintain a similar multiple after five years, its stock price could increase to $357. That would be a 151% increase from current levels.
So, investors who haven't bought Airbnb just yet can still consider doing so, as this growth stock is built for more upside.
