Airbnb is a cash flow machine, so don’t worry about its price drop


In May, Airbnb (NASDAQ:ABNB) decided to stop its activities in China. He was withdrawing all his Chinese lists. This move did little harm to ABNB’s stock. It has moved sideways in the month since.

The company has decided to focus its efforts in China on outbound travel for Chinese residents wishing to stay in Airbnb short-term rentals in other parts of the world. After Airbnb died in 2020 due to losing 80% of its business in two months, CEO Brian Chesky is more interested in profitable growth.

The resilience shown by the pandemic has accelerated his learning curve. The road to profitability is almost there. Airbnb continues to press the accelerator, to hell with ABNB shares.

It is a long term purchase. Here’s why.

ABNB share and free cash flow

Skift reported some of travel CEOs’ thoughts on their detractors in early June. In the case of Brian Chesky, he was defending the interests of Airbnb path to profitabilityand more specifically, what it was doing to generate free cash flow, the gold standard of financial metrics.

“We’re lean, we have 6,000 employees,” Chesky said, as quoted by Skift. “We were very, very profitable from a free cash flow perspective in the first quarter. We feel really good.

As Chesky recounted, the company was rebuilt from the ground up. He had to make tough decisions during the pandemic, including leaving 25% of its workforce go. Even if you have already fired many people, you will never get used to it. It is far from easy.

But it made the company stronger.

In the fourth quarter of 2020, its first as a public company, its free cash flow was -147 million dollars. For all of 2020, it was -$667 million. In the fourth quarter of 2021 and full year 2021, Airbnb’s free cash flow was $376 million and $2.2 billion, respectively. In Q1 2022, its free cash flow was $1.2 billionan improvement of 215% compared to the previous quarter and 94% compared to the first quarter of 2021.

By one of the most important financial standards you can follow, Airbnb kills it.

Even by GAAP standards, business is good

In the first quarter of 2022, Airbnb lost $5.1 million on its operations. In the same quarter a year earlier, its operating loss was $446.9 million. Still don’t think his business is improving?

Its interest expense over the 12 months between April 1, 2021 and March 31, 2022 has decreased by more than $441 million. Even his stock-based compensation was lower in the first quarter of 2022 — $195 million from $229 million a year earlier.

Now consider his expenses in the first quarter. Its cost of revenue was $362.6 million, or 24% of revenue, down nearly 500 basis points from a year earlier. At the bottom of the income statement, his major expenses were all a lower percentage of revenue compared to the previous year.

That’s what I call progress.

Did you review its key metrics during the quarter?

He reached 102.1 million nights and experiences booked in the first quarter, 59% more than last year, and more importantly, its first quarter exceeds 100 million. Its gross booking value in the quarter was $17.2 billion, up 73% from the first quarter of 2019, before the pandemic.

The number of bookings of 28 days or more is not surprising. In Q1 2022, it was the company’s fastest growing category in terms of ride time compared to 2019. They have doubled in size compared to 2019.

People continue to commute to work, mixing business with pleasure. It’s a win/win.

ABNB Stock is a cash flow machine

No matter how bad the markets are right now, I don’t see how you can’t be excited about Airbnb’s cash position at the end of the first quarter. For example, page 22 of its Q1 2022 letter to shareholders states that its unearned fee – service fee charged prior to registration – was $1.75 billion, or about $800 million more. than the first quarter of 2021 and $844 million more than those of the fourth quarter of 2021.

It’s loaded with cash, while Airbnb’s long-term debt is $1.98 billion, just 3% of its market capitalization. This is the ultimate asset-light business model. It’s a cash machine.

Of the 37 analysts covering ABNB’s stock, 34 rates it “hold” or better, with a median target price of $185, 83% above its current stock price.

If you want a growth stock that will make big money down the line, Airbnb is one of your best options. The good times are just beginning.

As of the date of publication, Will Ashworth had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to Publication guidelines.

Will Ashworth has been writing about investing full time since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and many others in the US and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


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