Airbnb’s (ABNB) Q4 2024 earnings results are just around the corner as the online accommodation marketplace is set to report its results this Thursday, February 13, after the closing bell. Expectations are relatively low this time, given the company’s struggles with declining booking growth and squeezed margins due to investments in R&D over the past couple of years.
Since Airbnb’s business model is susceptible to cyclical trends—like more budget-conscious travelers, real estate and accommodation supply issues, and tough competition—I don’t think the company has much control over its growth rates moving forward. That’s one of the main reasons I’m taking a neutral stance on ABNB.
That said, it doesn’t mean Airbnb stock doesn’t have some short-term catalysts that could play out in Q4 and offer short-term trading opportunities this week. Softer comps could lead to an earnings beat, and ongoing investments might result in a promising FY2025 outlook. The stock has shed 12% over the past year. Still, given that Airbnb’s valuation isn’t precisely cheap, from a mid-to-long-term perspective, I’m staying on the sidelines for now.
A Closer Look at Airbnb’s Recent Developments
Airbnb will report its Q4 earnings having set a low bar, especially since it’ll be up against softer comps. Only 2 analysts have raised their EPS forecasts in the last three months, while 26 have lowered them. Analysts expect the company to report EPS of $0.59 which would be almost flat compared to the same quarter last year. On the revenue side, analysts predict $2.4 billion, right in the middle of the company’s guidance, representing a 9.2% year-over-year growth.
Furthermore, ABNB’s stock price has been undermined over the past twelve months because of slower revenue growth in FY2023 and FY2024. This slowdown can be traced to limitations in Airbnb’s business model, especially around supply. Major cities are facing a real estate bubble driven by high post-COVID migration, and that’s holding back growth. Plus, global trends in consumer spending have also made it more challenging, with travelers becoming more budget-conscious.
But that’s not to say Airbnb is a problematic company. Far from it. The company has $11.25 billion in cash, equivalents, and short-term investments on its balance sheet, which is about 13.4% of its market cap, currently at $84.3 billion. Airbnb also has just $2.25 billion in net debt. This strong balance sheet is due to its strong cash generation, with a free cash flow margin of 31% over the last twelve months—though that’s still about 5% below its five-year historical average.
Key Themes for Q4 Earnings Results
Recent earnings have been intermittent when topping EPS estimates, missing three out of four, but Airbnb has consistently beaten revenue expectations for nine straight quarters. This suggests that Airbnb’s management has historically been conservative with its revenue guidance.
Considering that ABNB tends to lowball its estimates, I think the key thing investors should focus on is the bottom line, especially if the company beats earnings expectations. Airbnb’s management guided in Q3 that it expects the company’s adjusted EBITDA margin to reach 35.5% in 2024. Hitting that target would mean Q4’s adjusted EBITDA margin will be 26.5%, a significant drop from 33.3% in Q4 2023.
This margin decline is tied to the company’s investments in marketing and product development, like improvements to the mobile app, making features more customizable. Furthermore, ABNB plans to relaunch Airbnb Experiences in May 2025 to expand its core offerings. In other words, early 2025 is more of a sowing phase, where the company is setting up for future growth, particularly in its top line, hoping to reap the rewards as these investments pay off later.
That said, a game-changer could be more optimistic guidance for FY2025, suggesting these initiatives will enable growth to resume. In the short term, if margins drop less than expected in Q4, it could spark a more bullish reaction after earnings.
A Closer Look on ABNB’s Valuations
As the leader in its short-term rental and alternative lodging industry, Airbnb trades at a significant premium compared to its peers, with a 33.8x forward earnings multiple versus the 17x industry average. Still, Airbnb has traded 42% below its average over the past five years compared to its own history.
When you factor in growth, analysts expect an EPS CAGR of 13.7% for Airbnb over the next three to five years, which gives it a PEG ratio of 2.4x—also a hefty premium compared to the industry average of 1.55x. On the cash flow side, Airbnb trades at a 21x forward cash flow multiple, about 50% lower than its historical average.
While these multiples aren’t cheap by any means, it’s clear that some negativity is priced into Airbnb’s share price. This reflects a slowdown in growth as the company matures. Nevertheless, as Airbnb reinvests more heavily in 2025, sacrificing margins to drive growth, there may still be pressure on its free cash flow margin, which has struggled to reach its 5-year average of 32.7%.
Is Airbnb a Good Stock to Buy?
Wall Street analysts are on the fence about ABNB. Airbnb stock carries a Hold consensus rating based on five Buy, 10 Hold, and five Sell ratings over the past three months. ABNB’s average price target of $138.22 per share implies a 2.2% upside potential compared to current levels.
Lowballed Earnings Estimates Set to Deliver for ABNB Bulls
For Airbnb stock to move higher, the company must reassure investors this Thursday that growth can accelerate in 2025. A strong Q4 earnings beat would be a crucial first step, especially as Airbnb faces easier year-over-year comparisons and ongoing pressure on its bottom line due to growth-focused investments.
Since Airbnb’s business is cyclical, much of the growth story is closely tied to broader economic conditions. With global consumer spending under pressure and lingering challenges with accommodation supply, ABNB’s ability to drive meaningful expansion remains uncertain. With that in mind, considering the stock is far from cheap, I’d prefer to stay on the sidelines for now, taking a wait-and-see approach instead of betting on an immediate turnaround in ABNB’s growth story. However, plenty of other, shorter-dated market participants will be on the lookout for lucrative trading opportunities, given the perceived gap between sentiment and actual performance.