Airbnb Is a Cash Flow Machine, So Don’t Worry About Its Dropping Price

  • Like most growth stocks, Airbnb (ABNB) is losing market cap in 2022.
  • Despite being down 39% year-to-date, ABNB stock remains a good long-term buy.
  • It all comes down to free cash flow. It’s got plenty and it’s growing by the day.
ABNB Stock - Airbnb Is a Cash Flow Machine, So Don’t Worry About Its Dropping Price

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In May, Airbnb (NASDAQ:ABNB) decided to exit its business in China. It was pulling all of its Chinese listings. The move did little to hurt ABNB stock. It’s moved sideways in the month since.

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

The resilience showed during the pandemic has accelerated its learning curve. The pathway to profitability is almost here. Airbnb continues to step on the gas, ABNB stock be damned.

It’s a long-term buy. Here’s why.

ABNB Airbnb $101.22

ABNB Stock and Free Cash Flow

Skift reported in early June some of the musings of travel CEOs about their critics. In Brian Chesky’s case, he was defending Airbnb’s pathway to profitability, and more specifically, what it was doing to generate free cash flow, the gold standard of financial metrics.

“We are lean, we have 6,000 employees,” Chesky is quoted saying by Skift. “We were very, very profitable from a free cash flow standpoint in Q1. We are feeling really good.”

As Chesky related, the company was rebuilt from the ground up. It had to make tough decisions during the pandemic, including letting 25% of its workforce go. Even if you’ve fired many people before, it’s not something you ever get used to. It’s far from easy.

But it made the company stronger.

In Q4 2020, its first as a public company, its free cash flow was -$147 million. For all of 2020, it was -$667 million. In Q4 2021 and the entire year in 2021, Airbnb’s free cash flow was $376 million and $2.2 billion, respectively. In Q1 2022, its free cash flow was $1.2 billion, a 215% improvement over the preceding quarter, and 94% better than Q1 2021.

By one of the most important financial standards you can go by, Airbnb is killing it.

Even By GAAP Standards, Business Is Good

In Q1 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 its business is improving?

Its interest expense over the 12 months between April 1, 2021, and March 31, 2022, declined by more than $441 million. Even its stock-based compensation was less in Q1 2022 — $195 million vs. $229 million a year earlier.

Now, consider its 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. Down the income statement, its major expenses all represented a smaller percentage of revenue than they did a year earlier.

That’s what I call progress.

Have you looked at its key metrics in the quarter?

It achieved 102.1 million nights and experiences booked in the first quarter, 59% higher than last year, and more importantly, its first-quarter over 100 million. Its gross booking value during the quarter was $17.2 billion, 73% higher than in Q1 2019, before the pandemic.

Not surprising is the number of bookings of 28 days or more. In Q1 2022, it was the company’s fastest-growing category by trip length compared to 2019. They doubled in size from 2019.

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

ABNB Stock Is a Cash Flow Machine

I don’t care how bad the markets are right now, I don’t see how you can’t be enthusiastic about Airbnb’s cash position at the end of the first quarter. For example, page 22 of its Q1 2022 shareholder letter points out that its unearned fees — service fees charged before check-in — were $1.75 billion, approximately $800 million higher than Q1 2021 and $844 million ahead of those in Q4 2021.

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

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

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

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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