Airbnb Just Had Its Best Market Day Yet. Can It Keep the Run Going?

On Wednesday, Airbnb had its best day on the market, notching a breakout 13.35% gain. Although much of the surge resulted from Tuesday’s strong earnings report, it extends the company’s positive performance so far in 2023 — a whopping 61.38% increase since the start of the year.

Big wins for Airbnb aside, the travel industry as a whole appears to be rebounding — with an emphasis on appears. Travel companies still haven’t seen the number of travelers they were seeing pre-pandemic, even after the sector grew 41% in 2022. And while some believe more travelers will return to the road in 2023, others point to the looming recession as a reason they could stay home.

With this larger context in mind, let’s look at Airbnb’s most recent success and see whether the hospitality giant can continue this streak into 2023.

What’s behind Airbnb’s one-day gain?

In a nutshell: Airbnb had its first profitable year in 2022, and the company made more money despite having fewer bookings than what analysts expected.

The company earned $1.9 billion in revenue for the fourth quarter of 2022, beating experts’ forecast of $1.86 billion. Its net income from the quarter was $319 million — roughly 73% higher than what analysts had predicted ($184 million). More profits meant Airbnb stock had a higher earnings per share, or EPS: 48 cents, compared with the 25 cents to 27 cents that was expected.

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A few numbers were lower than analysts had expected. For instance, the company recorded 88.2 million nights booked, which wasn’t quite the 89.7 million to 90.1 million experts had wanted. And the gross booking value (the total amount customers pay, including all fees) was slightly lower than the number predicted: $13.5 billion versus $13.6 billion.

But the company has higher free cash flow ($3.4 billion) and more active listings (6.6 million) than it did a year ago, despite the fact it had to close operations in China, losing roughly 150,000 listings.

Strong numbers like these had investors enthused Wednesday. But so did the company’s forecast for the first quarter of 2023. All in all, Airbnb expects to earn between $1.75 billion and $1.82 billion for the first quarter, which would be a healthy amount above last year’s $1.5 billion. The company also expects to hold last year’s margins, which could make 2023 a second profitable year.

For reference, here are the fourth-quarter and 2022 earnings report numbers versus Wall Street’s predictions: 

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Can Airbnb keep up the strong performance?

The biggest question hanging over Airbnb in 2023 is something the company can’t control: the state of the economy and, more importantly, how that affects travelers’ abilities to fund airfare and accommodations.

In theory, a weakening economy would see fewer people renting short-term vacation properties and instead reserving their income for more immediate needs.

In fact, Airbnb expects the average rate for its rentals to drop slightly in 2023, something the company mentioned in its conference call to shareholders. Travelers, the company predicts, will seek out accommodations at a lower cost in 2023 as they try to get more value for less money.

That said, the company has noticed an uptick in European vacationers booking accommodations for the summer. This could strengthen its first-quarter earnings report, but it’s important to note that the dollar is now stronger than the euro. That could weaken the company’s European market, even if the numbers are strong.

But Airbnb does have a good reason to feel optimistic about 2023: The company has cash, and lots of it. Free cash flow at the end of 2022 was $3.4 billion, roughly 49% higher than the year before. More cash on hand means Airbnb doesn’t have to rely heavily on debt. And with borrowing rates as high as they are, that could mean spending less on interest and more on providing a better experience for its users.

Finally, remember that the number of international travelers in 2022 was only 63% of what it was in 2019: 900 million versus 1.46 billion. If, as some expect, that number climbs in 2023, Airbnb could benefit from the uptick.