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Airbnb (ABNB -9%) is moving significantly lower today after narrowly missing analyst earnings estimates in Q3. The alternative accommodations platform has been contending with growing macroeconomic headwinds this year, primarily extending lead times. Amid inflationary pressures, travelers are not losing their demand to travel but instead waiting to book closer to their departure date, weighing on ABNB's bookings growth.

While the trend was prevalent at the beginning of Q3, it began to subside as the quarter progressed. Nights and Experiences Booked, i.e., bookings, accelerated each month during Q3 as global lead times normalized. By the end of the quarter, bookings returned to double-digit growth, an encouraging development as ABNB now has the wind at its back as it enters Q4. As a result, ABNB expects Q4 bookings to accelerate relative to Q3. However, even with this momentum, ABNB projected Q4 revenue consistent with analyst estimates, targeting $2.39-2.44 bln, implying a 9% jump yr/yr at the midpoint, representing further deceleration from Q3.

• Still, the in-line Q4 guidance is not mainly driving today's sell-off. Instead, investors are concerned over ABNB's second-straight earnings miss. During Q3, ABNB delivered decent top-line growth of 9.9% yr/yr to $3.73 bln on an 8.8% bump in bookings.
• However, this growth came at a cost. ABNB is expanding beyond its core markets, targeting countries and regions that remain underpenetrated. The company has allocated capital toward its global markets strategy, modestly eating into its bottom line. Furthermore, ABNB's global expansion investments are weighing on Q4 margins, with its revenue guidance implying several points of margin compression relative to 4Q23.
• On the bright side, ABNB's global markets strategy has been bearing fruit. In Q3, the growth rate of nights booked in ABNB's expansion markets more than doubled that of its core markets. Management added that while its strategy is working, the timing and investment level will vary by market.
• However, fortifying its presence in underpenetrated overseas markets remains central to ABNB's long-term vision, which could accompany further margin compression beyond Q4. This has investors on edge today, even though demand is beginning to pick up.

Alongside its overseas strategy, ABNB is focused on supply and enhancing its core service. The company introduced its Co-Host Network, allowing potential hosts to discover already-established hosts locally that can manage listings on Airbnb. Meanwhile, the company has launched hundreds of new features to enhance its service while removing over 300,000 listings since last year that failed to meet guest expectations. While removing supply at the same time ABNB tries to improve supply may sound counterproductive, ABNB is committed to ensuring that only the best possible listings are hosted on its platform.

Bottom line, expansion investments eroding ABNB's bottom line in Q3 and potentially in Q4 are casting a cloud on otherwise uplifting trends from the quarter, including accelerating bookings growth as lead times normalize.