Airbnb & Uber – Tale of two marketplaces.

Airbnb Q2 2022 – Great company, bad stock.

• Airbnb reported good results and cash flow but concerns around growth hit sentiment which has obviously prompted the company to announce a buyback to prop up the shares.
• Q2 2022 revenue / EPS were $2.1bn / $0.56 pretty much in line with guidance of $2.1bn / $0.43.
• Bookings rose by 25% to 103.7m nights but this missed forecasts of 106m raising concerns that the growth that is priced into the shares may be slower than demanded.
• That being said guidance was good with $2.78bn – $2.88bn in revenues expected in Q3 2022 ahead of consensus at $2.78bn but this looks like it may have more to do with inflation as opposed to organic growth.
• The company clearly knows this which is why it is trying to prop up its flagging valuation with a $2bn share buyback.
• Airbnb is a classic situation of good company, bad stock.
• I love Airbnb as it serves a need, is the runaway leader in its space and is unopposed meaning no real competition.
• However, even after falling 8% the company still has an EV of $65bn meaning that it is trading on around 12x 2022 EV / Sales and more than 50x 2022 PER.
• This is a ludicrous valuation for this company and while I would love to own the shares, I see very little upside.
• In fact, if the bear market continues, this one is likely to get hit hardest.
• I am steering clear despite my liking of the company itself.

Uber Q2 2022 – Cash generation.

• Uber reported good Q2 2022 results as demand has come roaring back in all of its sectors which allowed the company to generate cash for the very first time.
• Q2 2022 revenues / EPS were $8.07bn / LOSS$1.33 compared to forecasts of $7.3bn / LOSS$0.27, but crucially the company generated cash.
• Cash flow from operations was $439m which even after FX adjustments and capex still allowed $272m to be added to cash reserves during the quarter.
• This is far more important than EPS in my view as the real value of a company is the present value of its cash flow and it is cash flow that allows a company to survive regardless of what EPS does.
• The main difference between profit and cash flow was $470m in stock-based compensation expense and $1.7bn in unrealised losses on financial assets that were marked to market during the quarter.
• MaUs are up to 122m ahead of 121m forecasts and Uber is seeing solid recovery in ride-hailing, food delivery and freight.
• It looks like Uber is on course to report revenues of around $30bn – $33bn this year which with an EV of $62bn puts it on an EV / Sales of 2.0x for 2022.
• This brings Uber into the valuation range where I start paying more attention.
• Uber is the dominant player in North America and with network-based businesses, one always wants to own the dominant player.
• Consequently, I think it is worth taking a closer look at Uber as there are signs that it is finally turning the corner.