Elevating Travel, Iconic Experiences And Decisive Growth Propel Brand Expansion

Key Takeaways

• Airbnb's introduction of Icons and significant supply growth highlight efforts to diversify offerings and attract more users, potentially boosting revenue through expanded market segments.
  
• Enhancements in user experience and strategic focus on quality, along with investments in less mature markets, indicate aims to increase user satisfaction, loyalty, and market share, likely impacting long-term revenue growth.
  
• Growing supply in less mature markets, removing non-compliant listings, focusing on mainstream hosting, dependency on travel demand, and strategies like mobile app growth could strain finances.

Catalysts

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

• The introduction of Icons, a new category of extraordinary experiences, signifies Airbnb's ambition to diversify its offerings beyond travel accommodations, expected to drive brand relevance and expand market segments, potentially increasing revenue streams.
  
• Significant supply growth, with active listings for accommodations growing 17% year-over-year, is poised to attract more users to the platform by offering increased options and improved discovery, which could drive up gross nights booked and overall revenue.
  
• Enhanced user experience through the rollout of over 430 new features and upgrades, including Guest Favorites, aimed at improving service reliability and ease of finding high-quality stays, likely to boost user satisfaction and repeat business, impacting long-term revenue growth.
  
• Strategic focus on raising awareness around hosting and removing low-quality listings to improve the overall quality of stays on Airbnb, which could enhance the platform’s attractiveness to both new and existing users, potentially leading to higher net income margins through improved customer loyalty and reduced customer service costs.
  
• Investment in less mature markets with the aim of unlocking more growth indicates potential for significant expansion in user base and revenue, particularly as gross nights booked in expansion markets grew twice as fast as core markets, presenting opportunities for increased market share and revenue diversification.

Assumptions

• Analysts are assuming Airbnb's revenue will grow by 11.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 48.2% today to 27.9% in 3 years time.
• Analysts expect earnings to reach $4.0 billion (and earnings per share of $6.19) by about July 2027, down from $4.9 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $5.4 billion in earnings, and the most bearish expecting $3.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.7x on those 2027 earnings, up from 19.0x today. This future PE is greater than the current PE for the US Hospitality industry at 19.4x.
• Analysts expect the number of shares outstanding to grow by 0.73% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 7.45%, as per the Simply Wall St company report.

Risks

• Supply in less mature markets growing twice as fast as core markets might eventually face limitations such as regulatory challenges, local competition, or market saturation, impacting future revenue growth.
  
• Removing thousands of listings that failed to meet guest expectations risks alienating hosts and could lead to a decrease in listing diversity, affecting the platform's attractiveness and potentially revenue.
  
• The strategic focus on making hosting mainstream requires significant resource allocation and may not yield the desired uptake rate, potentially affecting profit margins if the investment does not result in proportionate revenue growth.
  
• The dependency on travel demand for revenue growth, highlighted by records in nights and experiences booked, could become a risk if global travel faces downturns due to economic, health-related, or geopolitical factors, impacting earnings.
  
• Emphasizing growth in mobile app downloads and new feature releases such as Icons to drive user engagement could strain operational budgets, and if these strategies do not enhance user growth or booking rates as anticipated, they might negatively affect net margins.

Valuation

• The analysts have a consensus price target of $152.93 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 $80.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $14.3 billion, earnings will come to $4.0 billion, and it would be trading on a PE ratio of 30.7x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $148.0, the analyst's price target of $152.93 is 3.2% higher. The relatively low difference between the current share price and the analyst consensus 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.