It’s been a very choppy week for stock markets around the world. Almost without exception, indices are closing the week lower than where the started. Stocks within each index have reacted in different ways. For Airbnb (NASDAQ:ABNB) shares, it’s been a week to forget. The shares opened the week around $155, but were trading at $133 after hours on Thursday. So should I buy this dip?
Inflation fears weighing down Airbnb shares
The fall in Airbnb shares started at the beginning of the week, even before the important Q1 results were released yesterday. Why was this? The reason for the broader sell-off in markets this week was due to concerns about rising inflation expectations.
In the US, inflation for April rocketed 4.2%, much more than expectations. It was also higher than the March figure of 2.6%. The concern here is that the US Federal Reserve will be forced to raise interest rates to stop inflation running away.
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This will hurt companies that have large amounts of debt, as it becomes relatively more expensive to pay back and take on new debt. So it follows that Airbnb shares logically fell due to the debt pile it has. Last year, it took on around $2bn of debt financing to help it get through the pandemic. Even with some repayment, the company does have a high level of borrowings.
So part of the fall in Airbnb shares before the results was driven by this sentiment from investors about inflation and the knock-on impact regarding interest rates.
Latest results
In the latter half of the week, the fall was due to Q1 results. A headline figure of a loss of almost $1.2bn is never going to be taken well by the market. But on closer inspection, I don’t actually think results were that bad.
Gross booking value from customers was $10.3bn, up 52% on the same period last year. Of note was that fact that Q1 revenue was higher than Q1 2019 figures as well. I think this shows the level of pent-up demand among people who long to travel. Since bookings are forward-looking, I think this offers a good outlook for Airbnb shares.
In the short term, there was understandably a lot of focus on the large loss. This was made up of a few one-off expenses. Some $113m of this was impairment on the value of the San Francisco office space. Another $377m was related to having to repay a term loan. Finally, $229m was related to compensation expenses.
On balance, I do think the slump represents a good dip and it’s worth buying Airbnb shares, so I’m considering buying now. The loss doesn’t accurately reflect the state of the business, I feel, and the outlook is positive. In fact, the CEO commented that “we expect a travel rebound unlike anything we have seen before. Travel is coming back and Airbnb is ready”.
