Why Airbnb (ABNB) Shares Are Plummeting Today

Shares of the online accommodations platform Airbnb experienced a 5.81% decline during the morning trading session following a downgrade by KeyBanc analyst Justin Patterson. He revised the rating from Overweight to Sector Weight, expressing concerns about a slowdown in revenue growth and margin expansion.

Patterson noted that the recovery in leisure travel appears to be waning, which could lead to a decrease in room nights—referring to the number of nights that Airbnb properties are booked—and average daily rates, which indicate the typical price per night for booked properties. These metrics are critical for assessing Airbnb’s business performance. He also suggested that profit margins may have reached their peak, forecasting a potential revenue growth deceleration to 11% in 2024. Consequently, Patterson reduced the price target for Airbnb shares from $160 to $138.

On a broader scale, stocks in key indices, particularly in the technology sector, have also declined, as the market grapples with the implications of persistently high interest rates. Concerns are growing that tighter monetary policy could push the economy toward a recession, which has caused Treasury yields to spike to levels not seen in over a decade, with the last yield recorded at 4.787%, the highest since 2007. Elevated interest rates generally exert downward pressure on equity valuations, as current stock prices reflect the present value of future cash flows that are discounted at a higher rate. This situation particularly affects high-growth stocks, such as those in the technology space, as investors must apply greater discounts to future earnings.

Market reactions can often be exaggerated, and significant price drops may offer investors opportunities to acquire quality stocks at lower prices. Now, considerations arise about whether it’s a good time to invest in Airbnb.

The current market reaction signifies that Airbnb’s shares are quite volatile, having experienced 23 movements greater than 5% in the past year. The latest decline suggests that the market finds the news noteworthy but not fundamentally altering its view of the company.

One major event discussed in recent months occurred about five months ago when Airbnb’s stock dropped 10.6% after the company reported first-quarter results surpassing analysts’ expectations for gross bookings, revenue, earnings per share, and free cash flow. However, the guidance for room nights, revenue, and adjusted EBITDA for the following quarter fell short of consensus expectations. The disappointing EBITDA forecast was linked to shifts in the timing of marketing expenditures compared to the previous year. Moreover, the predicted EBITDA margin for the entirety of 2023 is expected to mirror that of 2022, slightly below initial expectations, indicating that the company may not achieve the operating leverage it sought for the year. Overall, this quarter was viewed negatively in light of the business outlook.

Despite the recent fluctuations, Airbnb’s stock has risen 52.1% since the start of the year. Nonetheless, with shares currently priced at $129.16, they remain 15.8% lower than the 52-week high of $153.33 reached in July 2023. For those who invested $1,000 in Airbnb shares during its IPO in December 2020, their investment would now be valued at approximately $892.44.