Airbnb Delivered A Loss In Its First Post-IPO Earnings Report

With its first earnings report as a public company, Airbnb Inc ABNB posted an annual loss. An annual deficit of $4.6 billion was the result of the coronavirus pandemic ravaging the travel industry. But the uptick in local travel, combined with a successful cost-cutting strategy helped the company's market capitalization to exceed more than $100 billion, which makes it more valuable than Marriott International Inc MAR, Hilton Hotels Corporation HLT and Hyatt Hotels Corporation H combined. Airbnb also had a far less severe revenue decline compared to its main rivals, Expedia Group Inc EXPE and Booking Holdings Inc BKNG, which were down 67% and 63% respectively over the same period. Airbnb's share price nearly doubled from its IPO price.

There's No Going Back

The pandemic initially crushed the home-sharing giant's business when lockdowns were imposed across the globe. But, Airbnb avoided a disastrous outcome thanks to an unforeseen increase in local excursions. Although yearly revenue declined, it wasn't as much as analysts expected given that no one considered people would want to get out of their everyday routine, even if it's by making a local trip. The company's CEO Brian Chesky doesn't think the world of travel will ever go back to how it was before COVID-19 started, but the company found a way to live with that.

Capitalize On New Trends

Mr. Chesky outlined how the health crisis had reshaped the business, pointing to a significant uptick in long-term stays as people around the world work from home. Some large employers have said they would offer that flexibility even when things return to normal, a trend that Airbnb can capitalize on.

Dealing With The Pandemic

Although hotel chains with a significant footprint in big cities suffered, Airbnb redesigned the company's website and app to show prospective travelers everything from lavish beach houses to rustic cabins nearby. Combined with cost-cutting efforts, it managed to weather the storm that paralyzed the whole world.

Figures

Fourth-quarter revenue fell 22% YoY to $859 million with full-year revenue dropping 30% to $3.3 billion. Fact Set analysts expected a fourth-quarter revenue drop of 33% and a drop of 32% for the full year.

The company trimmed a quarter of its staff, paused noncore operations, and slashed its hefty marketing budget to keep expenses down. Although it couldn't avoid a loss, the $3.9 billion loss for the quarter that ended in December also includes IPO-related costs of $2.8 billion and an $827 million adjustment for the loans it needed to navigate through the crisis. Last year's fourth quarter saw a loss of $351 million, but the latest loss brought the company's full-year deficit to $4.6 billion, which is more than its losses in the previous four years combined, exceeding the average forecast of analysts surveyed by FactSet.

Airbnb's full-year expenses rose 31% to $6.97 billion on the back of IPO-related stock compensation in the fourth quarter. However, before accounting for stock compensation, expenses in each category, from product development to operations and support services were lower. In this case, sales and marketing expenses declined 66% in 2020 compared to 2019, whereas when those costs are accounted for the same expenses rose 44%.

Like other companies, Airbnb offered an adjusted metric that excludes such costs so the negative EBITDA shrank to $251 million compared to $253 million in the previous year. On the same basis, its Q4 loss narrowed significantly to $21 million from 2019's Q4 loss of $276 million.

Outlook

Airbnb declined to give any formal guidance for the year ahead due to the uncertainty of the undergoing health crisis. While the third quarter is the busiest for Airbnb, the company has turned a profit in that period since 2018. But it expects bookings in the three months through March to be better than in the same period last year, when the health crisis first struck, but still below 2019 levels.

The home-sharing company plans to invest in marketing and product development during the first half of this year, so it is positioned to benefit from an expected rebound in the second half that the whole travel industry is hoping for. Management assured investors that costs will be controlled from soaring to pre-pandemic levels.

Airbnb's valuation plummeted to $18 billion nearly a year ago, as it raced to secure funds to weather the crisis. Its rapid growth also came with its share of challenges as homeowners from Arizona to Florida and Massachusetts are campaigning for laws to govern short-term rentals as they mind the increased noise, as well as connect it to crime and falling property values.

The bottom line is that remote work helped Airbnb's earnings hold up better than expected amid a crushed travel industry and it could easily be the source of its future revenue. It suffered heavy losses, mostly due to costs related to its long-awaited market debut in December, but it is also confident about its post-Covid-19 prospects as it adapts to new lifestyle trends.

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