Airbnb (ABNB -9%) is experiencing a notable decline after narrowly missing Q3 earnings estimates. Despite macroeconomic challenges, such as inflation, travelers are not losing interest in travel but are booking closer to their departure dates, affecting ABNB's bookings growth.
Initially, this trend was strong in early Q3 but lessened as the quarter progressed. Bookings, measured as Nights and Experiences Booked, increased monthly during Q3 as global lead times normalized. By quarter's end, bookings achieved double-digit growth, providing optimism for Q4. ABNB expects Q4 bookings to accelerate compared to Q3, with projected revenue of $2.39-2.44 billion, indicating a 9% year-over-year increase at the midpoint, though this marks a slowdown from Q3.
- The in-line Q4 guidance isn't the main reason for today's sell-off. Investors are concerned about ABNB's second consecutive earnings miss. In Q3, ABNB saw a 9.9% year-over-year revenue increase to $3.73 billion, driven by an 8.8% rise in bookings.
- This growth came with a cost. ABNB is expanding into underpenetrated global markets, which has slightly impacted its bottom line. Investments in these markets are expected to compress Q4 margins, as indicated by its revenue guidance.
- Despite these costs, ABNB's global strategy is showing positive results. In Q3, nights booked in expansion markets grew more than twice as fast as in core markets. Management noted that the strategy's timing and investment will differ by market.
- Strengthening its position in underpenetrated overseas markets is crucial to ABNB's long-term goals, potentially leading to further margin compression beyond Q4, which is causing investor concern despite rising demand.
Alongside its international strategy, ABNB is enhancing its supply and core services. The company introduced a Co-Host Network for potential hosts to find local hosts to manage listings. It has also launched hundreds of new features and removed over 300,000 listings that did not meet guest expectations. While reducing supply may seem counterproductive, ABNB is focused on maintaining high-quality listings.
In summary, while ABNB's expansion investments are impacting its bottom line in Q3 and potentially Q4, positive trends such as accelerating bookings growth as lead times normalize offer encouragement.
