Airbnb stock (NASDAQ:ABNB) has become one of the most lucrative on the stock market a little over two years after laying off a quarter of its workers.
The firm reported a net profit margin of 18% in the second quarter, but its performance was much greater on an arguably more relevant parameter. The corporation retained 38% of its $2.1 billion in sales as cash earnings according to its free cash flow. That is actual money that may be distributed to shareholders, invested in new ventures, or held on the balance sheet.
Airbnb Stock: The Airbnb success formula
Airbnb generated $2 billion in operational cash flow in the first half of this year. About half of it is unearned fees or money collected from guests before their reservations are complete. Airbnb earns interest on cash, which may be a significant source of revenue in a high-interest-rate market. Unearned fees have some seasonality, so investors can anticipate them to be lower in the second half of the year since the third quarter is the height of the travel season in North America.
Airbnb makes essentially no capital expenditures. The corporation spent $11 million in the year’s first half, even less than the $15 million spent in the first half of 2021. That figure, more than any other, demonstrates what distinguishes the company.
For example, leading rivals like Booking Holdings and Marriott spend more than ten times as much on capital expenditure while having about twice the revenue of Airbnb. As a rapidly expanding firm, Airbnb may be expected to spend more on capital expenditure than its counterparts, but this is obviously not the case.
That figure demonstrates Airbnb’s ability to operate a company and develop swiftly, with a 58% revenue increase in Q2 with essentially no extra infrastructure expenditure.
Airbnb can operate its business with minimal capital investment because its balance sheet is virtually wholly made up of cash. The balance sheet’s assets are $19 billion, including $17.4 billion in cash or receivables, comprising monies received from clients, marketable securities, and unrestricted cash. Its property and equipment total just $118 million.
Its company is profitable not due to physical assets but rather due to its leading brand, size, and the network effects of home-sharing, which provide Airbnb stock (NASDAQ:ABNB) with a broad economic moat.
What does this imply for investors?
With minimal capital expenditure necessary to build the firm, Airbnb’s profit margins should continue to increase.
Even while the firm is expanding during the vacation rebound and developing into a massive addressable market worth more than $1 trillion, Airbnb stock (NASDAQ:ABNB) is down approximately 50% from its high late last year. Wall Street underestimates the company’s earnings potential and competitive advantages. Investors ought to benefit from the recent sell-off and purchase this money-printing machine right now.
Featured Image – Megapixl © Mohammedsoliman4
Author Okoro Chinedu 
