Airbnb: travel boom propels profits and rosy outlook

Enjoyed your stay? Now load the washing machine, mow the lawn and feed the chickens. Lengthy to-do lists imposed by hosts have driven disgruntled Airbnb guests to check into hotels instead. But that cannot detract from a record year for the short lets business in 2022.

Bookings rose by nearly a third while revenues jumped 40 per cent to $8.4bn. Tight cost control helped the company deliver its first ever full-year profit. Net income of $1.9bn makes Airbnb one of the rare former unicorns to make the transition to profitability. And on a GAAP basis to boot. Ride-hailing group Uber should take note.

Success has also pushed up the price of check-in for new investors. Including Wednesday’s 13 per cent price gain, Airbnb shares are more than 60 per cent higher so far this year.

This puts the stock on a forward earnings multiple of 43 times. Big tech names like Apple and Microsoft trade at just 25 times and 27 times respectively.

Airbnb has a broadly bullish outlook on travel demand this year. But there are caveats to consider. One of the trends that Airbnb is seeing is the return of cross border travels and visits to cities. That is both good and bad.

Remote working during the pandemic boosted demand for longer stays in whole homes and rural destinations. These properties commanded higher prices, supporting revenue growth over the past two years.

The return of tourists to smaller, cheaper rentals in city centres should put the brakes on price gains. There are signs of this happening already. The average daily rate (ADR) actually fell 1 per cent year-on-year during the fourth quarter.

Airbnb expects rates to fall again in the current quarter. High cleaning fees and extensive to-do lists are fomenting customer dissatisfaction, meanwhile

Airbnb is rolling out “new pricing and discounting tools”. Price pressure is manageable as long as there is sufficient volume growth to make up the slack. But investors should wait until the valuation comes down before adding Airbnb share purchases to their own to-do lists.