Behind the Numbers: Analyzing the $11.3M Airbnb (ABNB) Stock Sale

Airbnb, Inc. (ABNB) CEO and Chairman Brian Chesky sold 84,144 shares on December 5. The shares were sold at prices ranging from $132.89 to $135.68, for a total value of nearly $11.31 million. Following the sale, the CEO now owns 15.9 million shares of ABNB. The transaction was disclosed in a legal filing with the SEC.

Also, Brian Chesky made other trades recently. On November 6, he sold 30,000 shares of ABNB stock at an average price of $118.59, for a total value of approximately $3.36 million. On October 2, the CEO sold another 30,000 shares of Airbnb stock at an average price of $136.54, for a total value of nearly $4.1 million.

On September 12, Chesky sold 150,000 shares of ABNB stock at an average price of $150.06 for a total value of approximately $22.51 million.

Over the past year, of the 190 insider trades, 162 were ‘sell.’ of which 156 were sales.

The CEO’s recent stock sale has raised some eyebrows in the investment community. Insider selling is often seen as a negative sign, as it could indicate that those with the most insight into the company’s workings and growth prospects believe that its stock price is overvalued or may underperform in the future.

But at the same time, insiders may sell shares for reasons unrelated to their expectations for the company’s future performance. For instance, when insiders liquidate their shares at consistent points throughout the year, they are merely diversifying their holdings. Also, the remaining sizable position owned by the CEO demonstrates his confidence in the company’s prospects.

Shares of ABNB have gained more than 20% over the past month and nearly 14% over the last six months. Also, the stock has surged more than 49% over the past year.

However, let’s take a close look at the travel company’s fundamentals to gauge how its stock will perform in the near term:

Robust Performance in the Last Reported Quarter

For the third quarter that ended September 30, 2023, ABNB, an online marketplace for hospitality services, reported revenue of $3.40 billion, beating analysts’ estimate of $3.37 billion. This compared to the revenue of $2.88 billion in the same quarter of 2022. The total nights and experiences bookings were 113.2 million, more than the 99.7 million reported in the year-ago quarter.

The travel company’s income from operations came in at $1.50 billion, an increase of 24.4% from the prior year’s quarter. Its net income rose 260.3% year-over-year to $4.37 billion. It posted net income per share attributable to Class A and Class B common stockholders of $6.63, compared to the consensus estimate of $2.10, and up 270.4% year-over-year.

Furthermore, ABNB’s cash and cash equivalents stood at $8.18 billion as of September 30, 2023, compared to $14.86 billion as of December 31, 2022. The company’s current assets were $17.52 billion versus $14.86 billion as of December 31, 2022.

Mixed Analyst Estimates

Analysts expect ABNB’s revenue for the fourth quarter (ending December 2023) to grow 13.4% year-over-year to $2.16 billion. The consensus EPS estimate of $0.66 for the ongoing year indicates a 36.5% year-over-year increase. Moreover, the company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.

For the fiscal year 2023, Street expects Airbnb’s revenue and EPS to grow 17.3% and 198.7% year-over-year to $9.85 billion and $8.33, respectively. In addition, the company’s revenue for the fiscal year 2024 is expected to increase 11.4% from the previous year to $10.98 billion.

However, analysts expect the company’s EPS for the next year to decline 47.7% year-over-year to $4.36.

Bleak Fourth-Quarter Forecast

The home-sharing company expects fiscal 2023 fourth-quarter revenue to be between $2.13 billion and $2.17 billion, representing year-over-year growth ranging from 12% to 14%.

In a letter to shareholders, Airbnb said it is seeing enhanced volatility in the quarter after a record-breaking summer travel season during the third quarter.

“We are seeing greater volatility early in Q4, and are closely monitoring macroeconomic trends and geopolitical conflicts that may impact travel demand,” the company said. On a conference call with analysts, executives said that assessment wasn’t prompted by softness in a specific region, but rather by “broad-based” unpredictability across the board.

“It’s just a little too early to tell how much volatility we see” going into the fourth quarter, CFO Dave Stephenson told analysts.

Regulatory Challenges and Other Headwinds

On September 5, New York City implemented new short-term rental regulations, resulting in a “de facto ban” on Airbnb’s platform. This led to a sharp reduction in listings in the city, one of ABNB’s chief markets. Regulatory restrictions on room rentals are reportedly in place or may occur soon in global locales such as Florence, Paris, and Austria.

In addition, the Canadian government recently introduced new tax measures targeting short-term rentals, which will significantly target Airbnb.

Many analysts further predict an imminent U.S. housing market crash. Famous financial author Robert Kiyosaki, who wrote Rich Dad Poor Dad, reportedly declared on social media, “Airbnb to lead real estate market crash.”

Wall Street Analysts Cut Their Price Targets

Airbnb’s stock was downgraded by analysts at Jefferies Financial Group from a “Buy” rating to a “Hold” rating on November 29, citing concerns over the slowdown in booking, which increases the risk of not meeting consensus expectations. Analysts cut the stock’s price target to $140 from $155.

Also, analysts at JPMorgan Chase lowered their price target on ABNB from $130 to $118 and set a “Neutral” rating on the stock in a research note on Thursday, November 2. Needham & Company LLC slashed their price target on Airbnb shares from $160 to $150.

Elevated Valuation

In terms of forward non-GAAP P/E, ABNB is currently trading at 16.72x, 7.7% higher than the industry average of 15.52x. The stock’s forward EV/Sales of 8.27x is 590.2% higher than the industry average of 1.20x. Likewise, its forward EV/EBITDA of 23.02x is 135.4% higher than the industry average of 9.78x.

In addition, the stock’s forward Price/Sales and Price/Book multiples of 9.15 and 9.58 are significantly higher than the respective industry averages of 0.89 and 2.50. Also, its forward Price/Cash Flow of 21.60x is 127.6% higher than the industry average of 9.49x.

Solid Profitability

ABNB’s trailing-12-month gross profit margin of 82.67% is 133.1% higher than the 35.47% industry average. Moreover, the stock’s trailing-12-month EBITDA margin and net income margin of 23.59% and 56.87% are considerably higher than the industry averages of 10.91% and 4.48%, respectively.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 74.47%, 14.56% and 25.47% favorably compared to the respective industry averages of 11.40%, 6.04%, and 3.99%. Also, its trailing-12-month levered FCF margin of 29.96% is 483.2% higher than the industry average of 5.14%.

Bottom Line

ABNB reported stronger-than-expected revenue and earnings in the third quarter of fiscal 2023. The last reported quarter was a record-breaking summer travel season for its business, with financial performance helped by continued solid international growth.

However, the home-sharing company provided a weak forecast for the fiscal 2023 fourth quarter as it sees greater volatility, with macroeconomic headwinds and geopolitical conflicts impacting travel demand. Further, Airbnb continues to face regulatory challenges, and a famous author declared that the company would lead the housing crash.

Insiders are continuously selling shares with the most recent sale by Airbnb CEO worth $11.3 million, indicating declining confidence in the company’s performance in the future.

Amid increased insider selling, stretched valuation, and uncertain near-term prospects, investors could hold ABNB and wait for a better entry point in this travel stock.

Airbnb (ABNB): Is the Final Bell Tolling for the Home-Sharing Giant?

Airbnb, Inc. (ABNB), with a market cap of $87.14 billion, is a prominent online hospitality platform that facilitates home and room rentals for travelers. However, 2023 proved to be a challenging year for the enterprise, as it faced stumbling blocks from social media backlash to fierce competition and regulatory obstruction.

The year started with the so-called "Airbnbust" chaos in March, wherein disgruntled hosts aired grievances on X (formerly Twitter) concerning diminishing returns and fears of a short-term rental market bubble.

Adding salt to the wound, rival company Vrbo preceded ABNB in introducing a much-sought-after loyalty program feature, thereby gaining a competitive edge.

Furthermore, the home-sharing giant faced regulatory hurdles in September when New York City severely tightened its regulations on short-term rentals, reducing ABNB’s occupancy in a market that historically constituted about 80% of its operations.

The Recent Bans on Airbnb

New York City has enacted a new law mandating short-term rental hosts to register with the city. This limits rentals to properties where the host resides and is present during the guest's tenure, further restricting the number of guests to a maximum of two per listing. ABNB has called this a “de facto ban” on its business, prompting a lawsuit against the city; however, the judiciary dismissed this claim.

This restriction is not exclusive to New York City. Other global cities also impose restrictions on ABNB, citing concerns over the platform’s effect on the housing market, residents' quality of life, and the safety of guests and hosts.

For instance, in Dallas, where short-term rentals are restricted to designated neighborhoods, a 10 p.m. curfew is implemented to forestall troubling and potentially hazardous parties, and the city further necessitates hosts to procure a permit and pay a fee for each listing.

San Francisco has set a cap on the days a host can rent out their entire residence through short-term leasing - a maximum of 90 days per year. Hosts must register with the city and remit a tax on the income generated from these short-term rentals.

In Amsterdam, restrictions include a cap on the number of nights for rental at 30 nights a year. Additional restrictions prevent short-term rentals in certain precincts, with fines imposed for violations.

Paris provides another case, setting a limit on annual rental days at 120 days and requiring hosts to register with the city and prominently display their registration number on their listings. Paris has embarked on a rigorous crackdown on illegal short-term rentals, deploying inspectors to conduct apartment raids, resulting in substantial penalties for non-compliance.

The Repercussions of the Bans

The restrictions imposed in New York City and other regions could potentially deal a significant blow to the home-sharing company, affecting the core elements of its business structure, including revenue, growth, reputation, and stakeholder relations.

The ban is anticipated to decrease the number of listings, bookings, and users ABNB can accommodate in the impacted areas, particularly New York City, one of the company's biggest and most lucrative markets. This could reduce the company's revenue stream and market share, diminishing its valuation and hindering growth opportunities.

Trust and loyalty from hosts and guests alike may take a hit as members of the ABNB community face disappointment due to restrictions or ensuing legal disputes. Hosts may lose income or be penalized for rule infringements, while some guests may experience scarcity in desirable or reasonably priced accommodation options. This could negatively affect ABNB by reducing consumer satisfaction and tarnishing its brand image and reputation.

Moreover, the ban amplifies ABNB’s regulatory and legal risks and costs. It could face additional challenges or lawsuits from authorized bodies or industry competitors in various jurisdictions. The need to lobby for policy alterations, negotiations with regulators, or adaptations to its business model and operations to adhere to existing or future regulations could significantly magnify ABNB's expenditure of resources and efforts.

Such changes could adversely impact the company's profitability, sustainability, innovation capacity, and competitiveness. Shareholders may lose confidence in the company’s ability to thrive in the face of regulatory challenges and legal disputes.

However, every cloud carries a silver lining. The ban could provide ABNB an avenue to diversify its offerings and markets. It may find this an opportune moment to increase its presence in less-regulated sectors or regions more accommodating to its platform. By leveraging its strong brand image, faithful customer base, diverse portfolio, and resilient business model, the company could successfully adapt to evolving travel trends and legislative measures.

This adaptability could assist ABNB in preserving or augmenting its unique value proposition and points of differentiation. It could potentially bolster growth and solidify its preeminence within the industry.

Despite the complexity of the situation, it is vital to point out a few other potential areas of optimism. Here are some additional impactful factors that could steer ABNB’s course in the upcoming months:

Robust Financials

ABNB’s revenue for the fiscal second quarter that ended June 30, 2023, increased 18.1% year-over-year to $2.48 billion. Its income from operations rose 41.7% year-over-year to $523 million.

Additionally, the company’s net income and net income per share increased 71.5% and 75% year-over-year to $650 million and $0.98, respectively. Also, its adjusted EBITDA increased 15.2% year-over-year to $819 million.

Stretched Valuation

ABNB’s forward EV/Sales and Price/Sales of 8.08x and 8.90x are 608.2% and 945.1% higher than the industry averages of 1.14x and 0.85x, respectively. Moreover, its forward non-GAAP P/E multiple of 34.54 is 142.9% higher than the industry average of 14.22.

Growing Institutional Ownership

ABNB’s robust financial health and fundamental solidity make it an appealing investment opportunity for institutional investors. Notably, several institutions have recently modified their ABNB stock holdings.

Institutions hold roughly 67.5% of ABNB shares. Of the 1,139 institutional holders, 517 have increased their positions in the stock. Moreover, 111 institutions have taken new positions (3,766,197 shares).

Insider Trading Activities

There are growing apprehensions due to an increasing trend of insider selling during the past year. On September 27, Nathan Blecharczyk, the company’s Chief Strategy Officer, disposed of 40,000 shares without executing any purchases over the past year.

On September 25, 2023, Aristotle Balogh, ABNB’s CTO, sold 2,750 shares of the company. Over the past year, Balogh has sold a total of 149,750 shares and has not purchased any shares.

Furthermore, on September 12, 2023, Brian Chesky, CEO and Chairman, sold 150,000 company shares. This is part of a series of such transactions over the course of the past year, where Chesky sold a total of 270,000 shares.

Optimistic Analyst Estimates

Analysts expect ABNB’s revenue and EPS for the quarter ending September 2023 to increase 17% and 16.6% year-over-year to $3.36 billion and $2.09, respectively. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

Price Performance

Shares of ABNB have gained 30% over the past year and 2.8% over the past month to close its last trading session at $136.56. The stock is presently trading below its 50-day moving average of $138.06 but above its 100-day moving average of $130.26.

Wall Street analysts expect the stock to reach $150.16 in the next 12 months, indicating a potential upside of 10%. The price target ranges from a low of $105 to a high of $185.

Bottom Line

A permanent or irreversible ban could significantly impact ABNB, necessitating the closure or termination of its primary operations within the affected regions. This could entail considerable losses for shareholders or require significant write-offs on their investments, potentially prompting them to sell shares at a reduced rate or disengage from the company entirely.

Furthermore, it is crucial to highlight that though insider selling can provide hints to investors, it does not definitively denote a pessimistic future for the company.

However, considering the encompassing circumstances and ABNB's inflated valuation, it could be wise to wait for a better entry point in the stock.