Airbnb (ABNB) reported its Q1 2023 results on Tuesday after the markets closed. ABNB stock opened Wednesday trading down nearly 14%. As I write this at Thursday’s open, its stock is down slightly in early trading but above its Wednesday open.
I won't pretend to understand what's happening in the head of investors. However, from where I sit, I view the company's first-quarter results as unequivocally good. It continues to have a great future because it adapts and changes.
For this reason, ABNB stock is an excellent long-term hold. However, to buy into Airbnb, there was an unusually active option from Wednesday’s trading that caught my attention.
Here is why I like Airbnb and what to do about it.
The Quarter That Was
Before getting into some of the high points of Airbnb’s results, it's important to recognize the elephant in the room: its share price fell on investors' concern about its soft guidance for the second quarter.
What caused all the commotion? First, the company admitted that it would be tough to beat its Q2 2022 numbers, which were through the roof due to pent-up demand after Covid-19 kept us all under lock and key for the better part of two years.
Duh!
Any investor worth their salt would know that this was going to happen. It's hard to understand why people react like they do to reality, but that's investing for you.
“Nights and Experiences Booked will have unfavorable year-over-year comparisons in Q2 2023 as we overlap pent-up 2022 demand following the COVID Omicron variant. We expect year-over-year growth in Nights and Experiences Booked in Q2 2023 to be lower than our revenue growth during the quarter,” stated its shareholder letter.
Being a glass-half-full kind of person, what I got out of that statement is that it expects Nights and Experiences booked to grow, just less than revenue. But the figure will still grow.
To put this in perspective, 121.1 million Nights and Experiences were booked in the first quarter, 19% higher than a year earlier and 49% higher than Q1 2019, pre-pandemic. It was the highest number in the history of Airbnb. Yet, investors chose to focus on the reset to a more normalized booking situation.
The same thing happens in retail. A company goes through a really hot period, and same-store sales are through the roof. Then, it returns to a normalized situation, delivering mid-to-high single-digit revenue growth. Investors freak out. The share price falls. Once investors realize the sky isn’t falling, they move back higher.
In Q2 2023, it expects revenue of $2.40 billion at the midpoint of its guidance for 14% growth. However, it believes Nights and Experiences booked will grow slower than revenue. Suppose this figure is half of the revenue growth or 7%. That means Nights and Experiences booked in Q2 2023 will be around 111.0 million, 34% higher than in Q2 2021.
I can do this exercise until the cows come home. The point is: the sky isn’t falling. Business is excellent and likely to get better.
50 Changes to Help It Grow
Every summer, Airbnb releases changes to its platform and system to improve the experience for hosts and guests. This year is no different. On May 3, it brought out its summer release.
This year’s big news was Airbnb Rooms, which attempts to make the Airbnb experience more affordable.
“With Airbnb Rooms, we’re getting back to the idea that started it all – back to our founding ethos of sharing,” said Brian Chesky, Airbnb co-founder and CEO. “Airbnb Rooms are often more affordable than hotels, and they’re the most authentic way to experience a city. This is the soul of Airbnb.”
As Chesky pointed out in the press release, that was the original concept for Airbnb. You would stay in someone’s home to cut down on the costs. According to company data, the average rate for a single room on Airbnb is $67, with 80% of private rooms under $100.
Chesky wants to keep its prices lower than hotels over the next couple of years, so it can continue to appeal to a younger audience. So get them in when they're younger and make them lifetime customers. Makes sense to me.
I could see Airbnb delivering a major Q2 2023 surprise because all evidence points to a hectic summer travel season.
“We aren’t seeing any dip in demand,” AP reported comments from Hayley Berg, lead economist at Hopper, a travel booking platform. “It seems incredible that the demand could be sustained, but we’re not seeing any weakness right now.”
The Unusually Active Option Worth Considering
Airbnb had a boatload of unusual options activity on Wednesday. So, to keep it simple, I’ll narrow my search to put options to sell with an expiration date of a week or more. That reduces my options (pardon the pun) to eight.
I like the Jan. 17/2025 $105 puts. It had a bid of $18.15. Based on holding for 1.69 years, the annualized return is 9.5%. If you’re an income investor, that’s very nice. Worst case scenario, it gets put to you in 2025, and your net price paid for ABNB would be $86.85. It last traded at this level in December 2022, its lowest since its December 2020 IPO.
I don’t see this happening, but you never know. So don’t sell this put if you don’t want to own the stock.
The bid as I write this is $18.40; the premium income is slightly higher, so the annualized return is 9.8%, 30 basis points higher. Of course, with more than 88 weeks to expiry, you’ve got time to think it over.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
