Robust Summer Demand Isn’t Enough To Help Travel Stocks Recover From Pandemic

Both Airbnb (NASDAQ:ABNB) and Booking (NASDAQ:BKNG) reported Q2 results this week as strong demand for travel continues. Expedia (NASDAQ:EXPE) is due to report its second-quarter results today after-hours.

Airbnb Fighting Cancellations

Shares of Airbnb fell on Wednesday even though the company reported better-than-expected Q2 earnings per share (EPS). Although ABNB shares initially dropped 10% following the results, earlier losses were trimmed to push the stock into the green territory on a weekly basis.

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Q2 2022 hedge fund letters, conferences and more

Airbnb reported Q2 EPS of $0.56, topping the consensus estimates of $0.43, according to Refinitiv. Net income totaled $379 million in the three-month period, compared to a $68 million loss in the same period last year.

Revenue came in at $2.10 billion, up 58% year-over-year, though just below the estimates of $2.11 billion. While this was Airbnb’s most profitable second quarter ever, the company’s revenue still grew at a slower pace than in the year-ago period when it grew by 70%.

Airbnb said its cost-cutting efforts helped the company weather the coronavirus pandemic and that it adapted its business as travel demand continues to recover.

“We did see some elevated cancellations in the back of the quarter relative to our forecast,” said Airbnb’s CFO Dave Stephenson. “We believe that some of the elevated cancellations were related to flight cancellations around the world, but it was mostly in North America towards the end of Q2 2022.″

Airbnb’s free cash flow tumbled quarter-over-quarter, which is likely one of the reasons behind its share price slump.

The company reported over 103 million nights and experiences booked in the second quarter, its largest-ever quarterly number, though still missed consensus estimates of 106.4 million.

Airbnb reported $17 billion in gross booking value (GBV), up 27% year-over-year, down from the 67% growth the company reported in the prior quarter.

Looking forward, Airbnb said it expects to report record-high revenue in the third quarter in the face of headwinds related to currency fluctuations, particularly the strengthening dollar against the euro. The San Francisco, California-based company said it expects Q3 revenue in the range of $2.78 billion and $2.88 billion, topping the consensus estimates of $2.77 billion.

Booking Beats Estimates but Shares Still Fall

Meanwhile, travel company Booking Holdings reported better-than-expected Q2 bookings and provided a record revenue forecast for the current quarter, suggesting a sharp rebound in travel demand this summer.

The company reported a total of $34.55 billion in gross bookings, topping the consensus projection of $32.8 billion. Total sales stood at $4.29 billion, almost double the year-ago quarter but still below the analysts’ expectations of $4.33 billion.

“Looking forward, we expect record Q3 revenue and are very busy working with our customers and partners to help enable an extremely busy summer travel season,” said CEO Glenn Fogel said.

Booking shares were initially up 5% in after-hours trading Wednesday before the market pared all gains and sent shares into the red. The pivot in the price action direction came after the management shared not-so-positive updates about the revenue growth concerning this quarter. According to Booking, the revenue growth slowed down in July.

Airbnb, Booking, and Expedia have been bracing for one of the hottest summer holidays ever following two difficult years of a coronavirus pandemic that resulted in worldwide travel restrictions.

While the rebound in travel demand is noticeable, there are some concerns about the travel market’s outlook for the remainder of the year. After grappling with coronavirus-induced travel restrictions for two years, the travel industry is now dealing with rampaging fuel costs driven by record-high inflation and war in Ukraine.

Furthermore, the strengthening dollar is also weighing on the industry as it rose against almost all major currencies just as travel demand was peaking.

Another indicator that travel demand is gaining momentum is recent Visa’s financial results, which noted a 28% jump in cross-border payments. The hospitality industry is also seeing growth, with Hilton Worldwide Holdings raising its full-year guidance.

Still, shares of online travel companies remain in the red this year, with Booking, Expedia, and Airbnb all being down 18%, 42%, and 31%, respectively.

Marriott Confirms Strong Demand

Hotel and residential property operator Marriott International said travel demand is staying solid and that there are no major concerns even though travelers face skyrocketing costs due to inflation and recession fears.

“We are not seeing any signs of any demand pullback at this point,” said Marriot’s CFO Leeny Oberg. “People want to get out there and travel.”

She added that U.S. residents are booking leisure trips after spending years at home due to restrictions. Oberg said companies are also booking vacations and trips to re-establish in-person connections among remote employees or meet with important clients.

Marriott reported a strong jump in revenue of 70% to $5.34 billion in the second quarter, topping the analysts’ estimates of $4.92 billion. The company’s financial report highlights the fact that Americans are spending big on travel and services, with earnings from other travel and hospitality companies showing similar trends.

Marriott also reported a global occupancy of almost 68%, just 7% below the pre-pandemic levels. The U.S. hospitality giant continued to hike prices, raising global average daily room rates for the quarter by 7% relative to pre-pandemic numbers.

CEO Tony Capuano said travel to major cities also recovered compared to the start of the year, with Marriott’s hotels across Washington, D.C., San Francisco, Los Angeles, and New York City seeing occupancy rates in the second quarter between 76% and 86%.

Capuano added that demand for the company’s hotel rooms also flourished across all of its customer segments after the majority of countries eased travel restrictions in the latest quarter. Various aspects of driving have also been impacted, ranging from soaring gas prices, to rental vehicles, and even car insurance policies.

Conclusion

Airbnb reported record-high revenue and strongest-ever profit for the second quarter, but its shares still fell in response to earnings as the guidance for nights and experiences booked for the third quarter missed estimates.

Still, shares of Airbnb have managed to recover as investors’ focus remains on demand. Similarly, Booking shares are down after results on negative commentary about July revenue growth.

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Updated on Aug 5, 2022, 11:36 am