535 Upgrades And Co-Host Network Will Transform Guest Experience

Key Takeaways

• Airbnb's feature upgrades and product optimizations are driving higher conversion rates, poised to significantly boost revenue in the future.
  
• Expansion of the Co-Host Network and investment in new business ventures aim to enhance listing quality and generate substantial future earnings.
  
• Regulatory challenges and high brand marketing costs pose risks to Airbnb's expansion, while tech investments need flawless execution to avoid impacting profitability and user satisfaction.

Catalysts

Operates a platform that enables hosts to offer stays and experiences to guests worldwide.

• Airbnb's rollout of 535 features and upgrades to enhance guest and host experiences is expected to increase conversion rates and drive revenue growth in 2025.
  
• The expansion of the Co-Host Network, which has grown to nearly 100,000 listings, is improving listing quality and efficiency, likely contributing to higher earnings and margins.
  
• Product optimizations such as enhanced search functionality, flexible payment options, and reduced friction in booking processes are resulting in higher conversion rates, anticipated to boost revenue.
  
• Airbnb's redesigned technology stack and unified messaging platform are set to expedite innovation and support new service offerings, positioning the company to expand revenue streams beyond short-term rentals.
  
• Investments in launching and scaling new businesses are expected to generate significant future revenue growth, as these offerings integrate with Airbnb's core services and attract more users, enhancing earnings potential.

Airbnb Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Airbnb compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Airbnb's revenue will grow by 13.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 23.9% today to 29.4% in 3 years time.
• The bullish analysts expect earnings to reach $4.8 billion (and earnings per share of $7.35) by about April 2028, up from $2.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 27.6x on those 2028 earnings, up from 24.9x today. This future PE is greater than the current PE for the US Hospitality industry at 22.0x.
• Analysts expect the number of shares outstanding to decline by 2.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.55%, as per the Simply Wall St company report.

Airbnb Future Earnings Per Share Growth

Risks

• Airbnb faces challenges with regulation and compliance in key markets such as New York, which could limit the ability to expand and drive revenue growth from urban areas, a segment where competitors like hotels currently dominate.
  
• The reliance on brand marketing in expansion markets suggests high initial investments, yet without a proportionate increase in marketing spend, sustaining growth could become a challenge affecting revenue and market share.
  
• The planned $200 million to $250 million investment in launching and scaling new businesses poses risks if these ventures do not quickly generate anticipated revenue, potentially squeezing margins and impacting profitability.
  
• While leveraging AI for customer service and engineering efficiency is a focus, the expected benefits are not immediate and might not offset the costs in the short term, potentially impacting net margins.
  
• The new technology stack and expanded offerings require flawless execution; any delays or missteps could disrupt service reliability, influencing user satisfaction and ultimately affecting revenue streams.

Valuation

• The assumed bullish price target for Airbnb is $182.13, which represents one standard deviation above the consensus price target of $156.12. This valuation is based on what can be assumed as the expectations of Airbnb's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $200.0, and the most bearish reporting a price target of just $95.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $16.3 billion, earnings will come to $4.8 billion, and it would be trading on a PE ratio of 27.6x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $106.3, the bullish analyst price target of $182.13 is 41.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.