Airbnb stock dives as revenge travel boom fades ahead of earnings

The Airbnb (ABNB) stock price has suffered a deep reversal in the past few weeks as concerns about the travel industry has remained. It has retreated by over 24% from its highest point this year, meaning that it is in a deep bear market as investors start focusing on its upcoming quarterly financial results.

Revenge travel boom fades

There are signs that the revenge travel boom is ending, as evidenced by the relatively weak financial results from companies like Ryanair, EasyJet, Marriott,  and Delta Air Lines. 

Revenge travel is a situation where people spent substantial sums of money traveling after the COVID-19 lockdowns. Now, the trend has been overtaken by what is commonly known as normalised travel. Indeed, recent data show that the revenue per available room (revPAR) dropped in March for the first time since the pandemic ended.

Airbnb stock price has, therefore, dropped as investors predict that its revenue growth will moderate this year. There are also concerns about competition in its industry as companies like Booking and Expedia gain market share in the sector. 

Airbnb is growing but challenges remain

Airbnb, the pioneer in the vacation rental industry, is showing signs of slowing down. In the most recent financial results, the company said that its revenues rose by 18% YoY in the first quarter to over $2.1 billion. In the past, Airbnb used to make over 25% in YoY growth rates.

Other metrics confirmed that its growth was slowing. Its gross booking value rose by 12% to $22.9 billion while the number of nights and experiences booked rose by 9%.

On the positive side, the management has focused on profitable growth as its net income rose by 126% to over $264 million. This growth was mostly because of its higher revenue and interest income. Its interest income rose to over $202 million since the company has over $7.8 billion in cash and equivalents and $3.2 billion in short-term investments.

Therefore, the upcoming interest rate cuts will likely have an impact on Airbnb’s net interest income. However, the company will also likely benefit as low rates stimulate travel spending in the US.

Another key concern among Airbnb stock investors is its stock-based compensation, which has continued rising, leading to some dilution. The company expects that this trend will continue rising this year and that it will be 20% higher this year than in 2023.

ABNB earnings ahead

The most important Airbnb news will be its financial results scheduled on Wednesday next week. These results will confirm whether Airbnb is seeing the normalized travel that other companies have experienced in the past few months.

The consensus view is that Airbnb’s business continued slowing in the last quarter. Analysts see the company’s revenue coming in at $2.74 billion, a 13% increase from the same period in 2023.

For the forward guidance, analysts expect that its revenue will rise to $11.2 billion, representing a 21% growth rate from last year. Its quarterly EPS is expected to come in at 91 cents, down from 98 cents a year earlier.

Airbnb has a good track record of beating analysts estimates and that trend could continue in this quarter. These results will provide more information about the impact on the ongoing Paris Olympic games. In a recent note, the company said that bookings in Paris were up by over 400%, which is understandable since thousands of people have traveled to the country.

Airbnb valuation and opportunities ahead

Despite its challenges, I believe that the company has room for more growth, albeit at a slower rate, in the future. 

Data shows that Airbnb’s annual revenue has risen from over $4.8 billion in 2019 to over $9.9 billion in 2023, and as mentioned, it could hit over $11.5 billion this year. These are still sold numbers for a company that has been in business for 16 years. 

The company is still the market leader in the industry globally. It beats VRBO, the company owned by Expedia Group, which has a market share of less than 2%. Airbnb is estimated to have over 30% of the market share. 

Airbnb also seems like a bargain as it trades at a trailing twelve months P/E ratio of 17, lower than the S&P 500 average of 20. 

Airbnb stock price analysis

On the daily chart, we see that the ABNB share price has been in a strong bearish trend in the past few weeks. This drop happened after the company formed a rising wedge chart pattern. 

The stock has also moved below the 200-day and 50-day moving averages, and is about to form a death cross pattern. Also, the Relative Strength Index (RSI) and the Relative Vigor Index (RVI) have all pointed downwards. 

Therefore, the stock will likely continue falling as sellers target the key support at $115. In the future, however, the stock will likely bounce back.

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