One of the more complicated narratives of the new normal, Airbnb (NASDAQ:ABNB) recently released its earnings results for the second quarter of this year. Though the company met the consensus revenue target and beat expectations for earnings per share (EPS), its bookings slipped against analyst forecasts. ABNB stock slipped after hours yesterday and this morning, though management expects even stronger results for Q3.
Heading into the Q2 disclosure, analysts expected EPS to come in at 43 cents. They were also targeting revenue of $2.11 billion. When Airbnb delivered actual results, EPS was 56 cents against top-line sales of $2.1 billion. Therefore, the company was a hair under parity for revenue but ended up providing a 30% positive earnings surprise. Ordinarily, that may have been an upside catalyst for ABNB stock.
However, in the company’s nights and experiences segment, it booked 103.7 million primary guests, missing analysts’ target of 106.1 million. To be fair, this is the company’s record for number of bookings in a quarter. And the actual tally represented a sequential 1.6% lift against Q1 2022’s tally of 102.1 million. Still, rising inflation and its myriad direct and indirect consequences probably spooked investors.
Management stated that flight cancellations — which, in part, stem from the economic woes and subsequent governmental responses to the coronavirus pandemic — near the end of Q2 negatively affected Airbnb’s business. Still, the leadership team expects record revenue in Q3, even against foreign exchange fluctuations. It guided Q3 sales to hit between $2.78 billion and $2.88 billion, ahead of StreetAccount’s $2.77 billion estimate.
ABNB Stock and Robust Travel Demand
Airbnb is banking on travel demand to continue picking up. Per CNBC’s coverage, ABNB stock — similar to ride-sharing firm Uber (NYSE:UBER) — benefitted from an increase in consumer spending on activities as opposed to goods. Further, some fundamental data appears to justify this belief.
Back in July 2020, UC Davis Health reported that Covid fatigue — or the impact of pandemic-related mitigation measures on mental health — was worryingly rising. Since that was only a few months removed from the onset of Covid-19, the power of pent-up demand (the so-called revenge travel phenomenon) built up over a two-year period has been incredibly strong.
Nevertheless, revenge travel must compete with another, potentially harsher reality: inflation. The latest data from the consumer price index reveals that in the trailing year ended June 30, 2022, inflation increased by 9.1%. Further, energy costs represented the overwhelming bulk of the rise in consumer prices.
Households can’t just ignore or sidestep their energy-related expenditures. As costs remain elevated, they will weigh down available discretionary funds. Therefore, travel demand risks a future disruption unless the Federal Reserve can tame inflation.
Why It Matters
Airbnb’s Q2 disclosure comes amid rising layoffs in the broader technology sector. As of this writing, the company has not initiated any job cuts this year. However, many of its tech peers have, suggesting not only a negative impact on the industry at large but also a declining total addressable market. Since tech jobs tend to be high-paying, losses here could pose challenges for ABNB stock down the line.
On the date of publication, Josh Enomoto 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 InvestorPlace.com Publishing Guidelines.