How To Turn The Airbnb Post-Earnings Panic Into A First-Class Upgrade – Airbnb (NASDAQ:ABNB)

One of the drawbacks of success is that investors want more. In many ways, online homestay marketplace Airbnb Inc ABNB revolutionized the lodging industry. In a stable sector, the company successfully integrated its business model into the sharing economy. This groundbreaking strategy has eventually led to strong earnings performances. Unfortunately, that hasn’t been enough to convince skeptical investors. Still, the red ink may create an opportunity for contrarian traders.

For the second quarter, Airbnb reported a 13% year-over-year lift in revenue to $3.1 billion, beating Wall Street analysts’ consensus view of $3.03 billion. In the year-ago period, the company generated sales of $2.75 billion. On the bottom line, management disclosed earnings of $1.03 per share, jumping above the consensus estimate of 93 cents per share. Last year, the company posted 86 cents.

In terms of major line items, gross booking value hit $23.5 billion, representing a lift of 11% year-over-year. Further, Airbnb’s Nights and Experiences booked landed at 134.4 million, up 7% against the same quarter one year ago.

“Despite global economic uncertainty early in the quarter, travel demand picked up, and nights booked on Airbnb accelerated from April to July,” the company said in a letter to shareholders.

Still, ABNB stock crumbled despite the seemingly robust earnings print. Investors seemed to take a dim view of the company’s third-quarter revenue guidance, with management anticipating the top line to land between $4.02 billion and $4.10 billion. This range represents year-over-year growth of 8% to 10%, which is conspicuously below the second-quarter’s growth rate of 13%.

Nevertheless, investors might be panicking without considering the bigger picture. Perhaps most notably, Airbnb stated that nights booked on an origin basis in its expansion markets have grown at about twice the rate of its core markets. This would indicate that despite tough economic conditions, consumers are still prioritizing travel.

Turning Narratives into Actionable Insight for ABNB Stock

As intriguing as the narrative may be, it’s incredibly difficult — if not impossible — to reliably forecast where (and when) a publicly traded security may end up. For retail traders, there is no edge in reading opinions on the internet. First, everybody else is probably thinking the same thing. Second, if the idea is so compelling, black box algorithms have already acted on the data.

Here’s the reality: the institutional and professional traders will always be bigger, stronger and faster. If you insist on running the ball up the middle, you’re not going to be winning too many games. What we need to do is to outthink the competition, and that can be done through discrete-state analysis.

The beauty of analyzing ABNB stock (or any publicly traded company) under the framework of discrete objects rather than through the frame of continuous scalar signals is epistemological continuity. An analyst can’t just imply that ABNB is a “good opportunity” without explaining how $121 per share is “good.” As far as I’m aware, numbers are just numbers — they don’t have objective characteristics.

In science, what is objective is the difference between stasis and kinesis. In the equities sector, the objective truth is that, at the end of the day, the market is either a net buyer or a net seller.

That, my dear readers, is everything. The rest are arbitrary details that, when applied consistently, can lead to insights that very few (if any) are seeing. For example, in the trailing 10 weeks (including this one), the market voted to buy ABNB stock four times and sell six times. During this period, the security incurred a downward trajectory. For brevity, we can label this sequence as 4-6-D.

Of course, before we initiate a position, we must establish the null hypothesis of ABNB stock or the probabilistic performance assuming no mispricing. In other words, the chance that a long position will be profitable is 53.06%, a solid upward bias. So, a trading setup has to beat the null, so to speak.

From past analogs, the 4-6-D does exactly that. In the following week when the sequence flashes, the upside probability jumps to 65.62%, with a median return of 4.69%. What’s really intriguing is that if the bulls can maintain control for a second week, the upside performance is an additional 1.99%.

If ABNB stock manages to end this week at $122, it would theoretically be on course to exceed the $130 level.

Putting the Math Together for a Compelling Call Spread

From the market intelligence above, arguably the most compelling may be the 125/130 bull call spread expiring Sep. 19. This transaction involves buying the $125 call and simultaneously selling the $130 call, for a net debit paid of $158 (the most that can be lost in the trade). Should ABNB stock rise through the short strike price ($130) at expiration, the maximum profit is $342, a payout of over 216%.

To me, the payout being so robust is a clear indication that the market makers are using a completely different risk-assessment model compared to mine. I believe that they’re using stochastic calculus and narrowing down the error range to as tight of a window as possible.

Obviously, it’s your choice as to which methodology you believe to be more credible. But if you want my opinion, I believe my approach is superior because it is a descriptive model — it calculates forward probabilities based on identical conditions (relative to the last 10-week framework).

A key criticism of my model is that there is no proof that the last 10 weeks of price action is inherently meaningful. However, of the ideas I present, I try to only discuss signals that feature a p-value of 0.20 or less. This way, there’s less chance that I’m dealing with random noise and a greater possibility that I’m working with actionable signals.

For ABNB stock and its 4-6-D sequence, the p-value comes out to 0.1055, which means that there’s a 10.55% chance that the implications of the signal could materialize randomly as opposed to intentionally. Given the stock market’s open and entropic nature, there’s something interesting going on with Airbnb.

The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.

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