Story Stocks^®

Airbnb (ABNB) delivered 1Q25 results that modestly exceeded EPS and revenue expectations, driven by healthy growth of 7.9% in Nights and Experiences Booked to 143.1 mln. Strong demand in Asia Pacific and Latin America, along with mobile app bookings growth of 17%, also contributed to the upside results. However, ABNB's Q2 revenue guidance of $2.99-$3.05 bln was merely in-line with analysts' estimates, and the company flagged potential flat-to-down Nights and Experiences Booked growth, representing a sharp downturn from Q1. Executives cited shorter booking lead times and broader economic uncertainties for the muted outlook.

This cautious guidance, coupled with softening U.S. demand amid trade-driven consumer caution, is keeping a lid on shares today.

• In addition to the strong growth for Nights and Experiences, Gross Booking Value (GBV) was another standout metric in Q1. Bolstered by robust nights booked growth and a modest 1% rise in Average Daily Rate (ADR) to $158, supported by price appreciation and monetization efforts around guest experiences, GBV grew by 7% to $24.5 bln.
• Adjusted EBITDA, a key profitability metric for ABNB, increased to $417 mln, comfortably exceeding expectations. This was propelled by revenue growth, disciplined cost management, and a favorable shift in marketing spend toward Q2.
• Looking ahead to the remainder of FY25, ABNB's growth strategy will hinge on expanding its core business and launching new offerings, with significant investments in underpenetrated overseas markets like Asia Pacific and the Middle East. Nights Booked growth in those markets outpaced growth in ABNB's core markets (U.S., UK, France, Canada, Australia) by over 2x. 
• Additionally, the company is enhancing its technology stack, with over 535 platform upgrades over the past year, while relaunching its Experiences business in 2025 to capture premium, event-driven demand. As a recent example, last summer's Paris Olympics drew a 5x surge in bookings. These initiatives, though, will come at a cost.
• With $250+ mln earmarked in investments for 2025, ABNB's margins will be pressured. The good news is that the company reiterated its expectation of adjusted EBITDA margins of at least 34.5% in FY25 -- representing a reasonable 150-bps decline yr/yr -- but if travel demand weakens further, its adjusted EBITDA margin could potentially fall below that floor. Should the U.S. market soften further, lower ADR and reduced booking volumes could exacerbate margin compression.

ABNB's Q1 performance was solid, bolstered by robust Nights and Experiences Booked growth and solid cost management, though tempered by U.S. demand softness and currency headwinds. The cautious Q2 guidance, signaling flat-to-down booking growth, alongside heavy investments in overseas expansion and technology, may also pressure near-term profitability. Over time, these investments position ABNB for long-term growth.