Airbnb losses accelerate as market continues to digest soft outlook for travel (ABNB)

Airbnb (NASDAQ:ABNB) shares continue to unravel, accelerating Tuesday’s after-hours feeding frenzy with another 15% loss as warnings about consumer spending habits and reluctance to book further in advance are weighing on the travel sector. Shares of Booking Holdings (BKNG), Expedia (EXPE), and Trip.com are all lower in sympathy (Tripadvisor (TRIP) shares are also in negative territory on soft Q2 results).

The scramble to lower estimates from Wall Street analysts was overwhelming as the company was swamped with price target cuts from BofA Securities, Wedbush, Barclays, Goldman Sachs, and J.P. Morgan, among many others.

“While a well-run company, [Airbnb] continues to look more similar to [Booking Holdings which is experiencing] slower room night growth, higher marketing spend and investment needed to grow,” Morgan Stanley said in Wednesday’s research note, adding, “ABNB’s heightened supply quality focus also reinforces our cautious view on supply limits to growth.”

On the company’s earnings call, CEO Brian Chesky tried to stay focused on upbeat Q2 results, namely the 11% increase in revenue and $1 billion in free cash flow.

“Looking back to Q2,” Chesky said, “we saw a number of positive business highlights. First, guests are increasingly booking on the Airbnb app. We’ve continued to optimize our mobile website’s app downloads, and we believe our approach is working. Nights booked in our app during Q2 increased 19% year-over-year.”

But questions on the shorter-booking lead times continued to plague the stock, even as executives struggled to defuse the issue. And while advance booking times may have shrunk, travelers are paying up for more expensive or larger properties, a development that could have negative implications further out.

“You are seeing stronger demand from higher economic demographics,” CFO Ellie Mertz said on the call, adding that another reason is that “the value proposition of Airbnb is that we offer these larger properties on a per guest basis, they can be more affordable than a hotel.”

While the value proposition favors less affluent travelers, the potential for a recession means spending on travel will be impacted dramatically as vacations are usually the first to be cut from discretionary spending. Therefore, Airbnb’s downbeat outlook suggests a “sequential moderation” in booking growth, a trend that is expected to worsen through the rest of 2024.

“There’s just a modest amount of softness that is bringing the average lead times down. And I think what we’ve seen in the past is from time-to-time people have moments where they are not booking in the same timeframe that they did in prior periods, and that’s what we’re tracking closely right now,” Mertz said on the call.

The softened outlook for Airbnb (ABNB) resulted in analysts lowering their price targets by 17% to 40% to a low of $80.