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It’s time to buy the dip in this generational growth stock opportunity
Airbnb(NASDAQ:ABNB)’s Q1 earnings report just hit the press on May 8th. Despite solid beats in the top and bottom results, investors sold the stock the next day as guidance for the second quarter fell short. Shares lost 7%, a significant one-day selloff for the travel leader.
Revenue rose 18% year over year to $2.14 billion last quarter, above consensus of $2.06 billion, while earnings per share more than doubled from $0.18 to $0 .41, far exceeding analysts’ estimate of $0.24. The increase in profit margins was due in part to the move from the Easter holiday to the first quarter, strong interest income and leveraging revenue growth and cost discipline.
While those results should have pleased the market, investors focused on guidance for the second quarter, which expected revenue growth to slow to 8% to 10% as the Easter shift turned into a headwind. However, this slowdown appears to be temporary, as management said revenue growth would accelerate in the third quarter as the company benefits from events such as the Summer Olympics and the European Championship.
Shares are now down 13% from their year-to-date peak and are at their lowest point in nearly three months. This creates an attractive buying opportunity as Airbnb still has a long growth path ahead of it.
Let’s take a look at some reasons to buy the dip in Airbnb stock.
Image source: Airbnb.
Airbnb is gaining market share
Airbnb competes with hotels and other types of overnight accommodation, but its closest competitors are other home-sharing platforms such as ExpediaIt’s VRBO.
But Airbnb already dominates the home-sharing niche with a leading market share among such platforms, and the company appeared to strengthen its position in the first quarter. Expedia’s revenue increased 8% in the period, while its B2C division, which includes VRBO, grew just 3%. The global gross accommodation reservation increased by 4%. Expedia does not release VRBO results, but has seen headwinds with the VRBO revamp as it moves the brand under the Expedia umbrella, where users will be able to take advantage of Expedia Rewards.
Competitors were unable to overcome the powerful network effect present on the Airbnb platform, allowing it to continue increasing its leadership.
The platform is creative with icons
In its summer update, Airbnb introduced one of its most original ideas, which it calls Icons. The company is giving travelers the opportunity to stay in iconic places around the world and have truly unique experiences, like a night at the Musée d’Orsay in Paris or a stay at the house from Pixar’s hit film Up.
The story continues
The icons are yet another way for Airbnb to differentiate itself from hotels and other home-sharing platforms. These ambitious experiences will elevate and reinforce Airbnb’s brand in travel and create buzz around its unique offerings.
As CEO Brian Chesky said, Airbnb is committed to expanding beyond its core business, so investors should expect more of these new features in the future.
Making smart financial decisions
Airbnb is a growth stock, but after being battered by the pandemic, management is running the business much more conservatively than many of its Silicon Valley peers, and is making prudent financial decisions and controlling spending.
The company continues to return capital to shareholders, repurchasing $750 million in shares last quarter. With a total of $2.5 billion in share repurchases last year, Airbnb reduced its shares outstanding by nearly 3% during that period. While 3% may not seem like much, this strategy adds up over time and Airbnb should be able to increase buybacks as profits increase.
Additionally, the company is benefiting from higher interest rates as it is on track to generate close to a billion dollars in interest income this year, giving it a significant boost to its bottom line.
This top growth stock it is running like a business and taking advantage of its superior financial position, and this will reward investors in the long run.
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Jeremy Bowman has positions in Airbnb. The Motley Fool has positions on and recommends Airbnb. The motley fool has a disclosure policy.
It’s time to buy the dip in this generational growth stock opportunity was originally published by The Motley Fool