Wells Fargo Analyst Sounds Alarm for Airbnb, Cites High Competitive Intensity and Lower Pricing

On Thursday, Wells Fargo analyst Ken Gawrelski initiated coverage on the Hotels, Restaurants & Leisure industry.

Gawrelski initiates coverage on Airbnb Inc ABNB with an Underweight rating and a price target of $99.

While he believes it is logical to introduce new products to combat ADR inflation and to reaccelerate share gains relative to traditional hotels, he does not expect 'Rooms' to prove meaningful to the overall business.

Although he would positively view the re-acceleration of share gains as a result of lower ADRs, he does not believe Street FY24 or FY25 incremental margin expectations of 44% and 50% reflect the impact of lower pricing and higher competitive intensity. 

Gawrelski initiates coverage on Booking Holdings Inc BKNG with an Underweight rating and a price target of $2257.

He believes BKNG is increasingly funding discounts ('merchandising') on Booking.com and other properties, while revenue is shifting towards lower margin flights and payments. 

The Street's higher out-year incremental margin expectoration appears incongruous, considering the potential margin pressure due to promotional activities and mix shift.

Gawrelski initiates coverage on Expedia Group Inc EXPE with an Underweight rating and a price target of $93.

Against a backdrop of escalating competition, he finds difficulty in reconciling current Street expectations for EXPE to reach above pre-COVID levels incremental margins in FY24, especially considering the travel market is now materially recovered from COVID disruption with normalizing growth. 

Price Actions: ABNB shares traded lower by 0.32% at $116.18 on the last check Thursday. EXPE shares traded lower by 1.29% at $107.69. BKNG shares traded higher by 0.97% at $2,669.87.

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Editor's Note: The story has been updated to correct the analyst's name