In the first half of 2022, Airbnb (ABNB) appeared to be a particularly vulnerable company to rising inflation. However, the CEO of Airbnb remains optimistic despite a difficult macroeconomic environment and even investors’ concerns about the possibility that the United States is in a recession. Additionally, there is no shortage of financial data, including Airbnb’s earnings growth, to allay shareholder concerns. I’m bullish on Airbnb stocks.
Airbnb provides a platform for hosts to get paid to provide temporary accommodations in their homes and for travelers to find hosts. The company has already had to deal with the outbreak of COVID-19, which has certainly had a negative impact on the travel business. It’s not just a guess, as Airbnb lost 80% of its business in eight weeks when the pandemic hit.
COVID-19 is still an issue, no doubt, but the inflation headwind is likely a priority for investors in 2022. Granted, annualized growth in the US consumer price index has fallen from 9 .1% in June to 8.5% in July. Nevertheless, inflation remains high and this factor could potentially inhibit Airbnb’s ability to generate profits.
However, there’s no need to panic to sell Airbnb stock, even with these concerns. Economic conditions will vary over time, but as we’ll find out, Airbnb has demonstrated its resilience with outstanding quarterly results.
Airbnb CEO sees the company as adaptable even in a recession
It’s undeniable that Airbnb must be under tremendous pressure to deliver results when inflation and economic uncertainty dominate the headlines. However, CEO Brian Chesky clearly isn’t too worried as he sees the company as well positioned to ride out any downturn. Economists can spend all day and night debating whether the United States is technically in a recession. A benchmark measure of a recession is two consecutive quarters of negative GDP growth, and the United States has met that criterion.
On the other hand, July’s 3.5% unemployment rate does not make current conditions look like a typical recession.
Nonetheless, Airbnb’s home rental platform is, in Chesky’s words, “incredibly adaptable.” Indeed, the CEO’s case for Airbnb as recession-proof carries weight. He says, “Airbnb is a very affordable alternative to hotels for a lot of people. That’s why I think a lot of people are going to turn to Airbnb in this economic environment.
This line of thinking makes perfect sense. Renters can make extra money during a recession if they have more room in their home. At the same time, travelers can bypass high hotel stay rates simply by logging into their Airbnb app.
Chesky also pointed out that Airbnb didn’t “have to adjust our hiring plans.” This is a good sign in a year when so many companies have laid off workers and/or implemented a hiring freeze. This is yet another signal to potential Airbnb investors that they will be involved in an exceptionally strong business.
Analyst also bullish on Airbnb stock
Now, you might object that Chesky is not an objective source of information. After all, it’s part of his job to be a hype man for Airbnb. Fair enough, but Chesky isn’t the only person with an optimistic view of Airbnb’s future prospects. Indeed, Oppenheimer analyst Jed Kelly also appears to view the company as capable of withstanding a recession.
Kelly reflects on the financial crisis of 2008-09 when Airbnb was a start-up. You might assume that Airbnb lost virtually all of its business during this stressful time. Still, Kelly observes that “Airbnb booking has increased with Room Nights”. Indeed, Room Nights still grew more than 50% while most other businesses struggled. Although the growth is not as strong since ABNB is much bigger now, it does give some clues as to what to expect.
Additionally, Kelly makes an excellent point about consumer behavior during a recession. “Most people in a recession comparison store, right?” he asks, and there is no doubt about it. Kelly concludes that we might expect buyers under the pressure of the recession to stick with what’s familiar and “go to Airbnb because they have such a strong brand.”
With that in mind, Kelly adds that in the third quarter, Airbnb expects to post EBITDA margins of 49%. That’s already impressive, but Kelly is obviously preparing for the expansion, predicting that “Airbnb’s margins will likely increase by 50 to 100 basis points next year.”
Kelly and Chesky have access to many data points if they need to build their trust in Airbnb. The company’s second-quarter 2022 revenue rose 58% year-over-year to $2.1 billion, and Airbnb just posted its second most profitable quarter ever at $379 million. dollars of net profit.
From a different perspective, Airbnb earned $0.56 per share in the second quarter, beating analysts’ consensus estimate of $0.45 per share.
There was also this tidbit in the earnings press release: Airbnb announced a $2 billion stock buyback program. According to the company, this speaks to Airbnb’s confidence in its “long-term growth and profitability.”
What is the target price of ABNB shares?
On Wall Street, ABNB has a Moderate Buy consensus rating based on 13 buys, 17 holds and one sell assigned over the past three months. Airbnb’s average price target is $134.43, implying 6.7% upside potential.
Conclusion: Investors might want to consider ABNB shares
Airbnb did not have to change its hiring plans. The company intends to buy back its own shares. Additionally, Airbnb has just released impressive financial results in terms of numbers and results. Moreover, the Airbnb CEO’s optimism is actually based on solid data and reasonable forecasts. Chesky isn’t just a pitchman; he leads Airbnb through America’s economic challenges. Knowing this, traders might consider holding a few Airbnb shares as an unexpected recession-proof investment.