• 1H22 Revenue/PATMI was at 44/27% of our FY22e forecasts. EPS of US$0.56 beat consensus estimates of US$0.43 by 30%. We expect profitability in 2H22 to rebound strongly driven by travel demand and higher operating leverage.
• Bookings volume grew 25% YoY to 103.7mn, but 3Q22 guidance was soft. Long-term stays (28+ days) grew 25% YoY and by almost 90% from 2Q19. Airbnb also announced a US$2bn share repurchase program.
• We downgrade to NEUTRAL from BUY after the recent run-up in its stock price. We maintain our DCF target price of US$119 (WACC 6.8%, g 4%) as our FY22e estimates remain unchanged. Macro uncertainties like rising inflation could weigh on discretionary demand for travel, but we believe Airbnb is a strong brand and could emerge as a preferred vacation option compared to hotels as it’s safe amid the spread of COVID-19, more affordable, and closer to home.

The Positives

+ 2Q22 revenue in line with forecasts. Airbnb met consensus estimates for its top line, posting US$2.1bn in revenue, representing a 58% YoY increase (64% YoY in constant currency). The growth was driven by a surge in booking volume and continued strength in daily rates. In 2Q22, the nights and experiences booked grew 25% YoY (up 24% vs pre-pandemic 2Q19) to 103.7mn, driven by continued recovery in urban and cross-border travel demand and improvement in business travel. 1H22 revenue/nights and experiences booked were at 44/49% of our FY22e forecasts.

+ Strong growth in long-term stays. In 2Q22, long-term stays (28+ days) remained the fastest growing category by trip duration as compared with 2Q19. Long-term stays surged 25% YoY and by almost 90% from 2Q19, driven by the rise of hybrid/remote work. Stays of more than 28 days now account for 19% of gross bookings volume, up from 13% in 2Q19.

+ Robust FCF generation and buyback authorization. Airbnb generated US$795mn of free cash flow (FCF) in 2Q22 and US$2.9bn of FCF in the last 12 months, ending 2Q22 with US$7.8bn in cash and cash equivalents. The company reported a net profit of US$379mn compared with a net loss of US$68mn in 2Q21, driven by top-line growth and an improved cost structure. Based on the strong performance, Airbnb announced a share repurchase program of up to US$2bn reflecting the management’s confidence about future growth and profitability.

The Negatives

– Soft 3Q22 guidance for bookings volume.  Management said that booking volume slowed in May/June due to higher cancellations attributed to the flight disruptions, especially in the US. However, demand accelerated in July and Airbnb’s 3Q22 guidance calls for bookings volume growth to be similar to the YoY growth rate seen in 2Q22 (~25%). This implies nearly 100mn nights and experiences booked in 3Q22.

– APAC nights booked remain the drag. In Asia Pacific (APAC), booking volume remained depressed compared with 2Q19 due to cross-border reliance, tighter government restrictions and closure of its domestic business within China. Excluding Asia Pacific, global bookings volume would have exceeded 2Q19 levels by 35% in 2Q22 (vs overall 24%).

Outlook

Airbnb expects travel demand to continue. In 3Q22, Airbnb expects to report total revenue between US$2.78bn-US$2.88bn, representing YoY growth rate of 24-29%, and up 69-75% compared to 3Q19. Adjusted EBITDA margin is also expected to be 49% driven by a disciplined cost structure and top-line growth.

Downgrade to NEUTRAL with unchanged TP of US$119.00

We downgrade Airbnb to NEUTRAL from BUY after the recent run-up in share price. We maintain our DCF target price of US$119 (WACC 6.8%, g 4%) as our FY22e estimates remain unchanged. Macro uncertainties like rising inflation could weigh on discretionary demand for travel, but we believe Airbnb is a strong brand and could emerge as a preferred vacation option compared to hotels as it’s safe amid the spread of COVID-19, more affordable, and closer to home.