AirBnb’s Post Pandemic Recovery Strategy (NASDAQ: ABNB)

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Hello!

We’ve have a property-themed newsletter for you this week, analysing Airbnb and the Chinese real estate company Evergrande. Both of these companies are timely to be discussing - Evergrande has been in the news due to its potential collapse and Airbnb due to the increasing speculation that Australian borders will open up.

As always, we’ve released two podcasts this week:

In today’s newsletter:

  1. Overview of Airbnb
  2. Airbnb’s Role in ‘Unique’ Travel Experiences
  3. Airbnb’s Natural Hedge
  4. Our Take
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Overview of Airbnb

Airbnb is a marketplace platform that enables ‘hosts’ to offer their spare rooms, apartments, homes and even islands to potential ‘guests’ for short term and long term rentals. Since starting in 2007, Airbnb has since grown to 4 million hosts who have welcomed more than 1 billion guest arrivals across over 220 countries and 100,000 cities. They have since expanded into ‘experiences’, which has allows hosts to offer activities and events to guests. Airbnb generates revenue by taking a % cut of booking value (~17% of the booking). They don’t include a breakdown of revenue by each of these segments but they do report Gross Booking Volume:

  • Stays generated ~USD 38bn in GBV across their 4m hosts in 2019
  • Nights and Experiences generated ~ USD 327m in GBV in the same year

Nights and Experiences are a new market for Airbnb and represents a tiny amount of their business but you can book some amazing activities on the platform including:

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and even meditation with a Japanese monk…

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Airbnb has undoubtedly been successful in becoming a major player in tourism and Experiences is its next big play to further solidify its position as the leader in hospitality.

Airbnb’s Role in ‘Unique’ Travel Experiences

When someone goes travelling, they do this for a range of reasons including:

  • To see and experience new cities
  • To immerse themselves in different cultures
  • And to meet a vast range of people

All three of these reasons represent something incredibly personal - you are at the centre of your travel experience, you want to see new cities, experience new cultures and meet new people. Each person wants to experience cities, cultures and people differently when you travel, even if you travel in groups, each person’s experience (and their intended experience) will be different.

This inherent ‘want’ to have a unique and personalised travel experience is the flaw in traditional hotels and resorts. Hotel rooms are homogenous and clinical - they all follow the same formula.

Three seperate rooms in three hotels but they all follow the same pattern

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Airbnb is the complete opposite of this - they offer travellers a vast range of accomodation options ranging from shared rooms, private rooms, whole apartments, and even castles!

The spectrum of Airbnb rooms available

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Airbnb’s competitive advantage to guests is that can directly provide the unique experience a traveller wants to have when they go to a new city. And for their ‘hosts’, their competitive advantage is the aggregated demand of travellers who want a unique, differentiated (and sometimes low cost) place to stay. Airbnb doesn’t compete on differentiation or price - it competes on both and has quickly grown to an immense USD $4.5bn in revenue (prior to the pandemic).

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Airbnb’s Natural Hedge

The pandemic wiped almost 50% of Airbnb’s revenue since 2019, reducing their revenue from USD 4.8bn to $2.5bn. The impact of closed borders and limited international travel has had a major impact on Airbnb’s business, causing them to cut close to 2,000 employees and slashing their Sales & Marketing spend.

With international borders closed, Airbnb has turned to two other avenues for growth and recovery:

  • Domestic short term rentals - travelling within your country (inter or intra state)
  • Long term rentals - staying in an Airbnb for longer than 28 days

Both of these segments of Airbnb’s business have grown considerably since the pandemic, while international travel has seen negative growth. As people look to either travel domestically to ‘scratch their travel bug’ or take long term rentals and escape the city (enabled by remote working), Airbnb’s has a natural ‘hedge’ in its portfolio to help offset the impact of the pandemic.

This is further supported by ‘Experiences’. In countries where it is safe to do so and regulations allow, Airbnb hosts can run in-person experiences including hikes, city tours and even activities such as canoeing, magic lessons and so forth. However, these Experiences aren’t just limited to physical and in-person activities, hosts have moved to online experiences. That meditation course? You can now do it online via Zoom. These digital experiences are just another ‘hedge’ Airbnb has to counter the impact of the pandemic.

Neither domestic travel and digital experiences will recover the lost billions that Airbnb has suffered due to the closure of international borders but has softened the blow and may provide an avenue for further growth when international travel levels resume in the coming years.

Our Take?

There is no denying that Airbnb has transformed the travel and hospitality landscape. As international borders have begun to open and the global vaccine rollout continues, they may return to their former size and continue on their previously strong growth trajectory.

Their recent move into Experiences could cement Airbnb as the go-to end-to-end tourism platform but they’ll need to replace their success in North America and Europe in emerging markets like the Middle East, Africa and LatAm but if they can do this Airbnb could stand with the giants of tech in the future.

🎙️ Want more detail on Airbnb and the impact of the pandemic on the business? Listen to this week’s podcast here!

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