Airbnb Q2 Earning Briefing: Seeking Certainty Under Uncertainty

Airbnb reported its latest financial data in after-hours on the 12th of this month. In short, while the COVID variants create ongoing uncertainty, with the changes happening in travel, Airbnb is still undoubtedly the beneficiary of the industry shifts.

Revenue:

• Revenue of $1.34B (+300% Y/Y), beats market expectation by $70M, increased by 10% compared to Q2'19.

• Gross Booking Value (GBV) of $13.0B, beats market expectation of $11.19B, increased by 37% vs. $9.7B in Q2'19.

• Room nights of 83.1M vs. 83.9M in Q2'19.

Earnings:

• GAAP EPS in Q2 was $0.11, beats by $0.32

• Adjusted EBITDA in Q2 was $217 M, substantially improved earning structure compared to the past ($(397)M in Q2'20 and $(43)M in Q2'19).

• Free Cash Flow (FCF) in Q2 was 784M (FCF margin of 58%), almost doubled that of Q1 (487M) vs. 121M in Q2'19. The major impact is the seasonal factor. Revenue for a large number of advance bookings in summer vacation was accounted in the Unearned Fee of Q2 (as of June 30th), therefore the FCF of Q2 is generally the highest of the year.

Comparison with hotel groups:

• IHG: Revenue of 565M in H1 2021, dropped by 44.2% vs. H1 2019.

• Marriott: Franchise fee revenue was $642M in Q2'21, dropped by 35.7% vs. $999M in Q2'19. Proprietary business revenue was $187M, dropped by 55.3% vs. $418M in Q2'19, still underwater.

Guidance:

Due to the pressure of Delta variant, the company expects the total room nights in Q3 to drop compared to 2019 Q3 and Q2 level, but the profit will improve compared to Q2. There is no guidance for the annual data.

Business:

The company is actively expanding the number of hosts, which increased by 8% in Q2 vs. Q1. The percentage of long-term stays is still high. The revenue growth of long-term stays over 28 nights is18%) vs. 24% in Q1. This number dropped since the number of short-term travels increases as the pandemic recovers. The bookings for stays over 7 nights account for more than 50%. Average Daily Rates (ADR) significantly increased since the current bookings shift towards high ASP customers in North America + entire house +long-term rental+ suburban area (rather than megacity). There are more long-term rental customers in the revenue structure of Airbnb. Change is happening in travel. Post-pandemic travel is shifting towards suburban stay and long-term stay, which is consistent with our long-term expectation towards Airbnb. With the shifting in post-pandemic travel, Airbnb is the leading company that seizes opportunity in the new travel structure. Compared to Marriott and IHG, which also reported their financial performances, the recovery of Airbnb exceeds the other hotel groups in terms of speed and quality.

Stock:

Although the performance was good, the stock price dropped by 4% in after-hours. We think this is partly because the company's guidance is not strong, with the possibility of deterioration, due to the pandemic. More importantly, Airbnb's business has been estimated by lots of third-party data providers. As a result, the good performance in Q2 has been reflected in stock price. Therefore, we do not recommend investors trade in earnings seasons based on third-party data. We also discover that the downloads and usage of Airbnb reached a historical high in Q2 using tools like Apptopia.

In the near turn, Airbnb is still under the pressure of full valuation, and we believe more time need to let earning digest the high valuation. The focus of business operation is expanding the number of hosts to prepare for the recovery of tourism when the pandemic is over. We don't think there would be a significant rise in Airbnb's stock price until the pandemic risk completely disappears. At the same time, based on the limited data, we could see that the customers prefer long-term stay+ suburban stay + family travel. Airbnb has extraordinary branding. The total number of rooms in Q2 increased by 10% vs. Q1, but the sales and marketing cost was even lower (Q2'19 S&M of $359M vs. Q2'21 S&M of %315M). When the pressure of pandemic is removed, it is expected to see a drastic increase in both the number of rooms and profit margin of Airbnb. That would be the time point where Airbnb stock price and valuation significantly increase.

Based on the stock price in the past three months, thanks to better performance and faster recovery, the valuation of Airbnb is more robust than that of the hotel (MAR) and OTA (EXPE) days before the financial reports were released. The stock price of Airbnb was noticeably higher than that of other hotels and OTA. One possibility is that a large number of people speculate on Airbnb stocks after searching third-party data. This resulted in the drop in stock price after the earning were released, because people were "buy the rumor sell on the news".

We’re still rate Buy on Airbnb with target price of 180 (short-term limited upside, long-term bull case 250)

Details of the reports and financial data can be found in our April report: Airbnb Growth Opportunity of An Era