Airbnb's (NASDAQ:ABNB) Optimistic Path to Profitability Relies on a Generous Growth Rate

By
Stjepan Kalinic
Published
September 14, 2021
NasdaqGS:ABNB
Source: Shutterstock

After an initial IPO success, in a very challenging year,Airbnb, Inc.'s (NASDAQ: ABNB)stock had uneventful several months.

The stock had dipped toward the lows between the insider selling and persistent virus variants on more than one occasion. Yet, it persevered, rebounding on an Earnings beat in August, and it continues to climb, even in the face of the latest negative rating.

Check out our latest analysis for Airbnb.

While the Q2 earnings looked good with GAAP EPS and revenue beating the expectations, it is hard to look at any 2020 comparisons due to the pandemic skew. Even so, management expects Q3 to set the high bar and be the strongest quarter on record so far.

The company is also looking to score some PR points, as CEO Brian Chesky announced a plan to house 20,000 Afghan refugees for free. He appealed to other business leaders to support this global initiative.

Yet, Airbnb seems to get a less bullish outlook from some institutions. First, Morgan Stanley issued a note with a price target of US$140, then Goldman Sachs issued a Sell rating with a price target of US$132.

While these are isolated examples and the overall coverage remains bullish, institutional support will be important to sustain the high market cap, as institutional ownership is currently at only 32.5%. You can check the detailed ownership breakdown here.

Examining the numbers to profitability

The company's loss has recently broadened since it announced a US$4.6b loss in the full financial year, compared to the latest trailing-twelve-month loss of US$4.9b, moving it further away from breakeven. The most pressing concern for investors is Airbnb's path to profitability - when will it break even?

The consensus from 33 of the American Hospitality analysts is that Airbnb is on the verge of breakeven. They expect the company to post a final loss in 2021 before turning a profit of US$317m in 2022.

Therefore, the company is expected to break even just over a year from now. To meet this breakeven date, we calculated the company's rate to grow year on year.

It turns out an average annual growth rate of 43% is expected, which is extremely buoyant. Should the business grow at a slower rate, it will become profitable later than expected.

earnings-per-share-growth
NasdaqGS: ABNB Earnings Per Share Growth September 14th, 2021

Given this is a high-level overview, we won't go into details of Airbnb's upcoming projects. However, consider that generally, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

However, there's one issue worth mentioning. Airbnb currently has a relatively high level of debt. Generally, the rule of thumb is debt shouldn't exceed 40% of your equity, which in Airbnb's case is 58%. A higher level of debt requires more stringent capital management, which increases the risk around investing in the loss-making company. You can check our visualization of their balance sheet here.

Next Steps:

Airbnb's key fundamentals are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Airbnb, look at Airbnb's company page on Simply Wall St.

We've also compiled a list of relevant factors you should further examine:

  1. Valuation: What is Airbnb worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether the market currently misprices Airbnb.
  2. Management Team: An experienced management team at the helm increases our confidence in the business - take a look at who sits on Airbnb's board and the CEO's background.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

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