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Airbnb will ‘still drive a highly profitable’ business in a recession: Analyst

Oppenheimer Analyst Jed Kelly joins Yahoo Finance Live to discuss second-quarter earnings for Airbnb, consumer demand, recessionary risks, and the outlook for growth.

Video Transcript

JULIE HYMAN: Shares of Airbnb have been declining this morning after the company reported earnings after the bell last night, beating on the bottom line, announcing bookings of over 103 million nights and experiences. That was a record high, but it was lower than estimated. For more on Airbnb, we're joined by Oppenheimer's Jed Kelly, who tracks the company.

And Jed, I actually want to take a bit of a step back first before we dive into these numbers because one of the comments from the CFO really stood out to me on the call, Dave Stephenson. He said, we don't know what the economy is going to bring, but we do know that Airbnb is resilient to almost any kind of economic shock. That's-- I don't know. I feel like a company saying that's kind of jinxing themselves a little bit. What do you think? Is this a resilient company?

JED KELLY: Well, you got to remember if you take a step back, the company was founded during the '08 and '09 financial crisis, right? And typically, what we've seen in a recession-- this is true with the other OTAs, Expedia and Booking-- is, you typically get more supply. So what I think David means is that in a recession, you likely see consumers trade down so you do see ADR compression.

But you would actually potentially see more people list their homes or list their rental properties on Airbnb, increasing the supply, which should make volume all right. The other thing you generally see, too, with the online travel companies is the margin offset they get from lower ADRs, they can actually offset with lower sales and marketing. So that's what he means by resilient.

And even if you take a step back, obviously, the Street lowered their room nights for next year pretty dramatically. However, EBITDA actually was up, right? I think that the EBITDA didn't change that much for next year. So that's sort of what we're saying is-- and that's what he means. It's, they will still drive a highly profitable, high free cash flow generative business in a recession.

BRAD SMITH: And so in this, perhaps, environment where we're going to be watching how closely the consumer-- because in past recessions, consumers would lean into loyalty. They would lean into where they're getting the rewards from as well and capitalize on those. Is that an implication that Airbnb should be concerned with? Is that something that you believe that they're going to have to kind of problem solve for in this near term period of time as well?

JED KELLY: No. We saw in '08, '09 booking grew with Room Nights. Now, they were a much smaller company, but they still grew Room Nights over 50%. So what you see in a recession, even though you have loyalty like through Marriott or Hyatt, right, but that's a small segment of the population. Most people in a recession comparison shop, right? So you would expect them to go to Expedia, but you'd also expect them go to Airbnb because they have such a strong brand name.

And I actually see them in a recession, just given their unique supply, given their over 6 million listings, I think they'll be fine in terms of demand generation. The reason we have a performance just on valuation, it trades over 23 times our EBITDA. And we see a risk of multiple compression if we go into a recession.

BRIAN SOZZI: Jed, a lot of focus in techland on hiring and firing. Now, Airbnb, they cut to the bone when the COVID-19 pandemic was really taking hold. Are you happy with their expense structure now? Do you need to see them take more actions?

JED KELLY: No, they're investing in the business. I mean, they're-- next, this third quarter, they're calling from 49% EBITDA margins. We have margins expanding probably 50 to 100 basis points next year. And we still have them developing product in product and tech and operations and support. If you look at the design, right, they're spending a lot of money on their design.

They've done a great job with categories. They've done a great job with flexible search. I mean, the management team is executing flawlessly. So who are we to say they're spending too much or too less, given how they're positioned. And if they think they see share gains, especially with onboarding more hosts, I would expect them to invest.

JULIE HYMAN: Chad, good to catch up with you on this. Oppenheimer analyst Jed Kelly on the Airbnb numbers. Thanks.