KeyBanc has downgraded Airbnb Inc.'s stock, stating that the vacation rental platform will likely face pressure as leisure travel slows down after a strong recovery from the peak pandemic years. According to analysts led by Justin Patterson, two key metrics for Airbnb, namely room nights and experiences (RNE) and average daily rates (ADR), are expected to face elevated risks.
In a note to clients, the analysts commented on Airbnb's prolonged period of ADR strength resulting from delayed recoveries across regions and in urban markets. They believe that as consumer spend on services outpaces goods, a reversion in the market is likely.
KeyBanc also anticipates that Airbnb's near-term earnings will fall short of Street expectations, starting in the fourth quarter. Consensus estimates suggest an approximately 11% decline in RNE compared to the third quarter, as opposed to pre-COVID norms of 12% to 13%.
Furthermore, the analysts pointed out that restrictions imposed by Local Law 18 in New York City, which severely limit short-term rentals, could contribute to quarter-on-quarter declines. This is particularly significant considering that New York City is a popular destination for New Year's Eve.
As per Local Law 18, Airbnb hosts are now only allowed to rent their homes if they are present and no more than two guests are permitted at a time. Lawmakers argue that the abundance of short-term rentals on Airbnb is contributing to a housing shortage and causing rent prices to rise. In response, Airbnb contends that the city is yielding to pressure from hotel lobbyists and hindering visitors from accessing more affordable accommodation options.
New York City Implements Stricter Measures Against Airbnb
In recent news, New York City has taken significant steps towards cracking down on Airbnb. Following this development, KeyBanc, a financial services company, has expressed its belief that Airbnb's growth may decelerate in the coming months. This cautious outlook has led analysts to revise their forecasts for the company's earnings and margins.
KeyBanc suggests that Airbnb's margins have reached their peak after experiencing substantial growth over the past three years. With new investment requirements on the horizon, the financial institution anticipates that Airbnb's margins will remain flat or slightly decrease in 2024.
As a result, KeyBanc has revised its projections for Airbnb's EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2023, 2024, and 2025, reflecting a more modest booking growth. The updated forecasts indicate an expected EBITDA of $3.5 billion in 2023, $3.8 billion in 2024, and $4.4 billion in 2025. These figures correspond to annual RNE (Revenue per Available Listing) growth rates of 14%, 13%, and 12% respectively.
Given these revised projections, KeyBanc states that it views the fair value of Airbnb stock to be $138. Currently, the stock is priced at $136.56 as of Monday's closing.
However, it is important to note that this downgrade could be proven incorrect under certain circumstances. If Airbnb demonstrates countercyclical behavior and remains resilient during economic downturns, if new services experience accelerated growth, or if Airbnb takes assertive action to reduce costs, the outlook may change.
In terms of performance, Airbnb's stock has shown substantial growth this year, with a 60% increase year-to-date. In comparison, the S&P 500 index has gained 11.7% in the same period.