Airbnb downgraded as 'valuation remains expensive'

Investing.com -- Phillip Capital downgraded Airbnb to Reduce from Neutral on Tuesday, citing high valuations and limited near-term upside due to rising operational costs.

While Airbnb reported strong Q3 2024 results with revenue up 10% year-over-year to $3.7 billion, driven by robust summer travel, Phillip Capital expressed concerns about Airbnb’s valuation, noting that it trades at a “significant premium to the market and OTA rivals” like Booking Holdings (NASDAQ:BKNG) and Expedia (NASDAQ:EXPE) Group.

With Airbnb’s current price-to-earnings ratio for fiscal year 2025 at 31x, compared to Booking’s 24x and Expedia’s 13x, the firm stated that “valuations seem quite full.”

The downgrade follows Airbnb’s reported adjusted net profit after minority interest (PATMI) of $1.4 billion, a 15% decline from the previous year, impacted by increased marketing and product development costs, as well as a 21% rise in operating expenses.

Despite strong demand in key markets such as Brazil and Asia-Pacific, with notable growth in bookings due to outbound travel from China, Phillip Capital is cautious about the company’s future profitability, especially as Airbnb continues to invest in its brand and expand its offerings.

For Q4 2024, Airbnb anticipates revenue growth of 9% year-over-year to $2.4 billion, with a sequential improvement in booking volumes. However, the firm expects adjusted EBITDA margins to contract by approximately 600 basis points due to higher investments, bringing the margin down to 27%.

Looking forward to 2025, Phillip Capital noted that Airbnb’s “aggressive investment strategy” in expanding market presence and product development will likely limit margin growth, making it challenging for the company to justify its current high valuation.

Phillip Capital maintains a price target of $120 on the stock, reflecting its cautious outlook on Airbnb’s valuation.