🏡Airbnb'ing in 2024🏡
Introduction
Airbnb has always had a special place in my heart simply because of my own personal experiences with using their services. Instead of the horror stories you read about online, like the home not matching up to photos posted online and having a long list of chores to do at check out, I’ve had quite the opposite experience. I feel like I’ve been able to see the places I visit like a local more than I would had I stayed in hotels.
I think the appeal of being able to visit certain places and live like a local is exactly what attracts people to ABNB’s platform. You usually even get to have a kitchen and usually a larger space than a hotel. I don’t know about you, but I go crazy after like the third day of not being able to cook something for myself (even if it’s something mundane like eggs for breakfast).
After seeing a ~6% decline in their stock price after their Q1 FY2024 earnings report to ~$147, ABNB has slowly clawed its way back to almost where it was before their quarterly report ($157 pre-report).
I think ABNB 0.00%↑ is in a unique situation similar to how Uber disrupted the transportation industry. The road ahead faces many hurdles like governmental regulations as well as figuring out how to fend off competitors.
Let’s get to Airbnb’ing:
🏠Company overview
🏠Company performance
🏠The challenge ahead
🏘️ABNB Overview
Airbnb was founded by these three guys: Brian Chesky, Joe Gebbia, and Nathan Blecharczyk
Brian and Joe came up with the idea in 2008 when they struggled to pay for rent in San Francisco. They decided to rent out their air mattress and offered breakfast to guests. From a common struggle in SF, sprouted the idea to create a platform where others could also rent out their homes.
ABNB’s Business Model:
Airbnb generates revenue through charging service fees to both the guest and the host. On top of that, the company also offers experiences (like guided tours), which include a service fee to Airbnb. There are also listing distinctions as well, such as Airbnb Plus & Airbnb Luxe. These two options for hosts & guests will inherently cost more, which generates a higher service fee for Airbnb.
It’s almost crazy to think that before 2008, your only options were either a hotel or a friend’s/family’s home while traveling. As the travel & hospitality industry evolves, existing players are playing catchup. Vrbo, which is part of Expedia, has taken ABNB head on. Booking.com has also added vacation rentals and apartments to their platform. Furthermore, Marriott and Hilton have begun to offer various vacation rental options. As more players adapt to the changing landscape of the hotel and hospitality industry, emphasis on profit margins and non-core products will become more important.
🏘️ABNB’s Past Performance
It’s always necessary now to talk about how a company performs during the pandemic era and how they respond to post-pandemic conditions. We’ve seen companies fail to adapt like Peloton, but we’ve also had success stories like Netflix.
With work from home and surges in travel after the lock down was removed, ABNB benefited immensely from the increase in demand. This sent the stock to new highs of over $200/share. However, ABNB began to run into issues going into 2023 and to present day. From the economy turning volatile to regulatory issues, ABNB still has many obstacles to navigate around.
Surprisingly, the past year (trailing 12 month) ABNB’s stock has yielded +16% returns.
I believe this is because the company has done a pretty good job reacting to post covid economic pressures and the normalization in demand for travel accommodations. Airbnb’s gross profit margin quarter by quarter has steadily increased and has stabilized around 83%.
Q1 FY 2024 Results:
ABNB actually beat EPS for Q1 FY 2024 with the expected at 0.23 and actual being 0.41. Meanwhile, revenue also beat expectations by 3.9%. This shows that Airbnb has not only successfully dealt with managing their expenses but they have also done well in lowering prices of listings on their platform (which attracts more guests). The company states one of their challenges is the currency exchange rates, which should improve as the world economies begin to recover. The ADR (average daily rate) in Q1 of FY 2024 increased +3% year over year too, meaning Airbnb was able to take a higher service fee per night booked.
As travel continues to normalize, ABNB needs to focus on two things: managing profit margins to combat seasonality in the hospitality and hotel industry, and growing non-core products.
The company has done a great job with cleaning up and validating the legitimacy of listings on their platform. The UI has improved greatly to help users easily assess the quality of listings on the app.
This bodes well for future listings in different countries in the world where ABNB currently has low penetration in. It will make it smoother for guests and hosts to quickly become acclimated to the ABNB platform in these new countries. Because such expansion will require lots of capital and regulatory battles, I don’t think ABNB should be going all in on rampant expansion.
The problem ABNB now faces is finding more ways to create stickiness on their platform. The guidance for nights and experiences booked was weaker than expected, meaning the demand for travel has almost completely returned to normal post-pandemic. This means ABNB now needs to have non-core products that will drive revenue and growth. You can only increase ADR so much without effecting demand.
🏘️Challenge In the Future
I think it’s great that ABNB is leaning into their strengths: big group reservations and ABNB listings in places that may not have hotels. But, I think there is only so many ways you can iterate housing accommodations. ABNB just introduced Icons, which are experiences in living spaces like spending a night in the Ferrari Museum. These experiences are most likely just one off bookings, which probably won’t create repeat customers. There is a potential dead-end at the end of this road of constantly procuring new living experiences and creating into oblivion.
I want to reiterate this idea: many people probably share the same sentiment as me when I say the appeal of Airbnb’s is the ability to live like a local. It’s also probably more affordable as a big group than booking hotel rooms for everyone. Demand for urban travel is one of the company’s strongest areas. Creating a marketplace on the Airbnb platform to augment stays in an Airbnb is a great way to create user stickiness.
Booking.com, which is the largest online travel company by far, is also planning on expanding into alternative travel accommodations later this year. This adds more competition to ABNB, and more pressure to continue to stand out as a business. The Chief Business Officer of ABNB, Dave Stephenson, stated that the company is potentially going to try a marketplace with private chef sessions, maintenance services, or even airport rides. I would not be surprised to see ABNB’s platform eventually become more similar to Booking.com’s.
The edge that ABNB has over its competitors is that the company is positioned for special events, like the solar eclipse that happened earlier this year, the euro cup and even the summer olympics in Paris. ABNB is able to have listings in places where there aren’t as many hotels. When you tack on local experiences that users can pay for, you create a unique travel experience that people will want to come back for. I truly believe ABNB can co-exist with hotels and can even be on top versus its behemoth of a competitor, Booking.com as well as Vrbo who has said they are expecting slower growth.
After all, it’s called Airbnb’ing. Not Vrbo’ing.