Core Improvements And Global Expansion Will Secure A Bright Future

Key Takeaways

• Core service improvements and tech investments enhance usability, potentially increasing conversion rates and revenue growth.
  
• Expansion into Latin America and Asia Pacific with localized products shows promise for long-term revenue growth.
  
• Economic and geopolitical uncertainties, coupled with increased marketing expenses, could dampen Airbnb's revenue and margins despite growth initiatives.

Catalysts

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

• Airbnb is focused on perfecting its core service through product improvements, which is expected to enhance usability, affordability, and reliability for both guests and hosts. This is likely to drive conversion rates and increase revenue.
  
• Expansion into growth markets, including Latin America and Asia Pacific, is a key strategy. Airbnb is using a localized approach to product and marketing, which has already shown promise with higher growth rates in these regions. This expansion is anticipated to drive significant future revenue growth.
  
• Airbnb plans to introduce new offerings beyond core accommodation services, starting with a new product launch on May 13. These new businesses, as they scale, are expected to be significant drivers of revenue growth over the coming years.
  
• Investment in technology, including a rebuilt app on a new technology stack, positions Airbnb to innovate faster and enhance its platform. This tech upgrade facilitates diversified offerings and can potentially improve earnings through efficiency gains.
  
• Airbnb is poised to optimize its pricing strategy with host tools, enhancing flexibility and affordability. This approach can drive increased booking volumes, benefiting revenue growth while maintaining competitive average daily rates (ADRs).

Airbnb Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Airbnb's revenue will grow by 10.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.6% today to 25.2% in 3 years time.
• Analysts expect earnings to reach $3.8 billion (and earnings per share of $6.13) by about May 2028, up from $2.5 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $4.6 billion in earnings, and the most bearish expecting $2.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.9x on those 2028 earnings, down from 29.6x today. This future PE is greater than the current PE for the US Hospitality industry at 21.9x.
• Analysts expect the number of shares outstanding to decline by 2.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.47%, as per the Simply Wall St company report.

Airbnb Future Earnings Per Share Growth

Risks

• Economic uncertainties and macroeconomic volatility, particularly in the U.S., could lead to softer guest demand, impacting revenue growth if consumers delay travel bookings or choose different destinations. (Impact: Revenue)
  
• Growth in core North American markets has slowed, which may hinder Airbnb's ability to achieve double-digit nights growth if trends continue, especially if new international markets do not grow as strongly as anticipated. (Impact: Revenue)
  
• Marketing expenses are expected to grow faster than revenue due to new summer releases and growth initiatives, which may result in a flat or slightly decreased EBITDA margin, affecting overall profitability. (Impact: Net Margins)
  
• The company's investment in launching and scaling new businesses could negatively impact adjusted EBITDA margins, especially if these ventures do not generate expected revenue sufficient to offset costs. (Impact: Net Margins)
  
• Geopolitical and macroeconomic uncertainties could impact travel corridors and consumer behaviors, causing potential fluctuations in bookings and regional revenue differences, particularly if economic challenges deepen. (Impact: Revenue)

Valuation

• The analysts have a consensus price target of $139.203 for Airbnb based on their expectations of its future earnings growth, profit margins and other risk factors. 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 $96.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $15.0 billion, earnings will come to $3.8 billion, and it would be trading on a PE ratio of 25.9x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $121.67, the analyst price target of $139.2 is 12.6% 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.