I Will Encounter New York Restrictions And Unlock Travel Opportunities

Key Takeaways

• Regulatory challenges in key urban markets and economic conditions could hinder Airbnb's revenue growth and market share expansion.
  
• Intense competition and foreign exchange headwinds may affect earnings and profitability, with near-term financial pressures from investments and margin compression expected.
  
• Airbnb's strategic upgrades, global expansion, and AI deployment may drive revenue, enhance host earnings, and improve efficiency, supporting strong profitability and free cash flow.

Catalysts

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

• Airbnb faces potential regulatory challenges in key urban markets like New York City, which have banned the majority of its business. This could hinder future revenue growth in lucrative regions if similar restrictions are adopted elsewhere.
  
• The broader economic conditions and potential travel market moderation in 2025 might limit growth as the company's reliance on discretionary consumer spending becomes apparent, impacting revenue projections.
  
• Competition from hotels and other short-term rental platforms remains intense and despite recent improvements, Airbnb's inability to convert hotel loyalists into users could mean stagnant market share gains, affecting long-term earnings growth.
  
• The expected slowdown in adjusted EBITDA and margin compression in the first three quarters of 2025 due to investments in new businesses forecast a challenging near-term environment for maintaining profitability.
  
• Foreign exchange headwinds and the lack of recurring, high-frequency usage of its app pose challenges in achieving consistent revenue growth, and could result in earnings falling short of consensus estimates.

Airbnb Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Airbnb compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Airbnb's revenue will grow by 8.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 23.9% today to 19.9% in 3 years time.
• The bearish analysts expect earnings to reach $2.8 billion (and earnings per share of $4.65) 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 bearish analyst cohort, the company would need to trade at a PE ratio of 32.9x on those 2028 earnings, up from 28.5x today. This future PE is greater than the current PE for the US Hospitality industry at 21.8x.
• 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's extensive efforts to outpace the travel industry's growth through significant feature upgrades and optimizations—enhanced search functionality, improved merchandising, and localized payment options—may drive revenue growth in the coming years as these measures increase conversion rates and market share.
  
• The successful expansion of the Co-Host Network, which now supports nearly 100,000 listings, could improve earnings potential as enhanced listing management tools lead to higher host income and potentially more satisfied customers, impacting Airbnb's revenue positively.
  
• Airbnb's strategic investments in global market penetration, particularly in regions beyond its top five core markets, have yielded higher growth rates compared to core markets, suggesting that continued expansion and localization efforts could bolster revenue growth and market share.
  
• By deploying AI in customer support, Airbnb aims to improve operational efficiency and enhance customer experience, which might contribute to stable or improved profit margins and free cash flow as they reduce costs and increase customer satisfaction.
  
• The planned rollout of new offerings, as part of Airbnb's multiyear growth strategy, indicates potential for increased revenue streams. As new businesses begin to scale, they are expected to contribute significantly to top-line growth while maintaining strong profitability and free cash flow margins.

Valuation

• The assumed bearish price target for Airbnb is $126.54, which represents one standard deviation below the consensus price target of $154.0. 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 more bearish 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 bearish analysts, you'd need to believe that by 2028, revenues will be $14.0 billion, earnings will come to $2.8 billion, and it would be trading on a PE ratio of 32.9x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $121.32, the bearish analyst price target of $126.54 is 4.1% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.