Airbnb, Inc. (ABNB), the popular online platform that offers various rental properties and experiences, including homestays for vacation, reported substantial earnings growth for the third quarter as the tourism sector returned strongly from the pandemic lows. The strong recovery of Airbnb in the third quarter highlights the company’s long-term potential, and I am bullish on the prospects for Airbnb stock, given that the tourism sector is likely to gain traction in the coming months as mobility restrictions ease.
Earnings Recap
Airbnb reported revenue of $2.2 billion for the third quarter, up 67% year-over-year and 36% from the same period in 2019. The number of nights and experiences booked on the platform increased 29% year-over-year to 79.7 million.
In the third quarter, the company’s gross booking value, used to measure host earnings, service fees, cleaning fees, and taxes, reached $11.9 billion, up 48% year-over-year. Airbnb’s growth was driven by travel recovery during the summer, which resulted in host earnings reaching a new high of $12.8 billion in the quarter.
Average daily rates for properties reached $149, up 15% from the same period last year, while net income came to $834 million, up 280%. For the quarter ending September 30, adjusted EBITDA exceeded $1 billion, doubling from $501 million reported in the corresponding period last year.
Airbnb’s strong third-quarter performance gives an indication of what the company could achieve in the long run by disrupting the travel and tourism industry.
Remote Working is Boosting the Demand for Travel
The world is witnessing a tremendous shift in how people choose to work. The work-from-home trend that started in 2020 in response to the public health crisis is shaping up to become a long-lasting trend.
The remote work culture has become increasingly popular in every corner of the world as people look for ways to enhance their work-life balance. Many top travel destinations are now offering freelancer visas allowing people more freedom to work from anywhere in the world.
This trend is likely to help Airbnb register strong growth in bookings over the next couple of years as the company has emerged as one of the top service providers for freelancers on the move.
Macroeconomic Tailwinds
Airbnb is one of the leading vacation rental companies in the world and is also becoming a top choice for student housing and temporary housing. The primary reason why Airbnb is gaining popularity among students is that individuals renting Airbnb properties have access to all of the facilities in a given rental unit. There is little to no paper required to book or rent a house, which is a considerable benefit for students.
In the third quarter, long-term stays (28 days or more) was the fastest-growing category for Airbnb, which is a promising sign. As professionals make the most of flexible work arrangements with their employees, long-term bookings on Airbnb can be expected to remain strong in the coming years.
The growth of the influencer economy is also proving to be a tailwind for Airbnb. Many global companies are sponsoring influencers to promote their products and services, which requires influencers to travel consistently. Airbnb has already established a name for itself as one of the best platforms to find accommodation almost anywhere in the world.
Wall Street’s Take
Based on 27 Wall Street analysts offering 12-month price targets for the stock, the average Airbnb price target comes to $196.04, implying 5.1% downside potential.
Airbnb stock gained more than 17% following the release of third-quarter earnings, which was instrumental in pushing the stock price above analysts’ average price target.
If the company delivers strong earnings for the fourth quarter of this year, the market sentiment toward Airbnb stock will only improve from here, and Wall Street analysts might be forced to revise their price targets yet again to the upside.
Takeaway
Increased travel demand in the third quarter helped Airbnb post its most profitable quarter ever. The company seems well-positioned to carry this momentum forward along with the expected recovery of the travel sector.
Disclosure: At the time of publication, Dilantha De Silva did not own any shares mentioned in this article.
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