With revenue of 16 billion in three years, how long can Airbnb continue to win without doing anything?

Company introduction: Airbnb is the uncrowned king in the rental industry

Founded in 2008 , Airbnb is undoubtedly the uncrowned king in the home-sharing rental industry. The company, which started with three inflatable mattresses and has only been around for more than a decade, has grown into the preferred short-term rental platform for travelers looking for personalized accommodation experiences and homeowners who want to make money by renting out their spare homes and houses.

 Founded : 2008

 Time to market: 2020

 Company headquarters: San Francisco, USA

 Market value: $ 53.7 billion

 Stock price: $ 84.87

Business model: Airbnb adopts a two-sided platform model, with homestay renters on one side and landlords on the other. Airbnb makes a profit by charging a 14% handling fee.

RF Research Institute’s view: short-term bearish, long-term bullish

1. Be wary of Airbnb in the short term

The United States is Airbnb 's main market. As the U.S. economy moves toward recession, demand for leisure travel, which is optional consumption, will be negatively affected. The trend of working from home in the United States has receded, leading to a further reduction in consumer demand for Airbnb .

The supply growth rate in the short-term rental market is relatively high, resulting in oversupply.

Airbnb's growth rate in 2022 was relatively high.

These three factors will result in Airbnb's future performance being likely to fall short of expectations.

2. Long-term bullish on Airbnb

In the long run, leisure travel is a steadily growing market, and Airbnb has formed a deep moat in this industry, firmly sitting in the top spot, and has long-term holding value.

Part 1. Macro analysis of the US leisure travel market

Short-term situation on the demand side: After bottoming out and rebounding, the growth rate began to slow down.

Long-term situation on the demand side: There is a strong and stable correlation between leisure travel consumption and disposable income.

Leisure travel is a behavioral habit. Unless there is a special external cultural shock, the habit will not change much. Therefore, the proportion of travel consumption in disposable income should be a stable value. According to historical data, before the epidemic, the proportion of leisure travel in disposable income was stable at around 5% , and the correlation between the two was as high as 0.95 .

Long-term situation on the demand side: It will continue to grow, but the growth rate will slow down due to the risk of recession.

However, due to the interest rate hike in 2023 , the United States is likely to experience a recession. The U.S. disposable income forecast is likely to fall by 0-2% in 2023. According to the strong correlation, in the case of an economic recession, travel expenses as optional consumption will decrease. Referring to the data during the 2008 financial crisis, in the first year of the recession, that is, 2008 , travel expenses fell by 3% year-on-year, and fell by 10% in the second year .

The recession in 2023 is unlikely to be as severe as that in 2008 , so the negative impact of the recession on travel demand should be smaller than that in 2008. This negative impact will weaken the growth rate, but since there is still a lot of room for growth, it is not expected to completely wipe out the growth rate. Therefore, it is predicted that demand will continue to grow in the future, but the growth rate will slow down due to the risk of recession. Therefore , based on the 6% growth rate, minus the impact of the recession, the growth rate is expected to be around 2-3% in the next two years , which is in a stage of stable slow growth.

Long-term supply-side situation: Future growth will be stable, but will slow down due to high interest rates.

Although the supply growth in Q3 2022 is very optimistic, the supply data will not continue to grow at such a high scale, because after the Fed raised interest rates, the increase in interest rates led to an increase in the cost of purchasing a house, and the gross profit margin of renting out a new house after purchasing it has decreased. According to AirDNA data, the difference between the monthly loan cost and the income from short-term rentals has been declining since 2022 , from $1,500 to around $300 . This means that if a landlord buys an apartment with a loan today and rents it out immediately, he can only make a profit of $300 per month , while this figure was $1,500 a year ago .

Long-term supply-side situation: Homebuyers during the epidemic will become the main force of supply growth

Although fewer people are buying new homes, more landlords will turn vacant homes into short-term rentals. The record-breaking loan interest rates in 2020 and 2021 have stimulated a large amount of investment in second homes. As short-term rental prices increase, if they rent out their homes as landlords, they can enjoy a short-term rental income of up to $4,500 per month , while only paying a monthly cost of about $2,000 in loan interest rates in 2021 , and the profit can reach $2,500 . In addition, with concerns about an economic recession in 2023 , landlords will be more motivated to turn vacant homes into short-term rentals in order to increase extra income. According to a report by Zillow , there will be a wave of first-time landlords in 2023 .

Part 2. Micro-analysis of Airbnb

Airbnb's performance during the epidemic: the growth rate was much higher than the entire leisure travel market, and its market share increased significantly.

Airbnb's North American market is mainly the US market. If we compare the growth rate of Airbnb's North American GBV and the total leisure travel consumption in the United States, we can see that from 2020 to 2021, Airbnb's growth rate was as high as 94%, while the total leisure travel consumption grew by only 35% during the same period. Airbnb's growth rate is much higher than the total leisure travel consumption, which means that Airbnb's growth is faster than the growth of the entire market. In 2018, the ratio of Airbnb's North American GBV/total US leisure travel consumption was only 1.7%, but by 2021, this ratio had soared to 3.7%, which shows that Airbnb's market share has increased significantly during the epidemic.

Airbnb's performance during the epidemic: The growth rate was higher than the growth rate of personal disposable income in the United States, and people had a strong demand for Airbnb, but it is now beginning to decline.

If we compare US personal disposable income and Airbnb's North American GBV, we can see that they were at a relatively stable ratio from 2018 to 2020. However, starting from 2021, GBV surged and began to decline in March 2022. In terms of growth rate, US personal disposable income increased by 17% from June 2018 to June 2022, while Airbnb's GBV increased by 163% during the same period and is now beginning to decline.

Airbnb's performance during the epidemic: profiting from the US work-from-home policy and experiencing explosive growth.

The surge in Airbnb demand is due to the popularity of working from home in the United States and the demand for independent apartments by travelers during the pandemic. From the beginning of the pandemic in March 2020 to April 2021, the number of people returning to work in the company fluctuated by only 20%. Airbnb's North American GBV soared during this period. However, when the number of people returning to work in the company exceeded about 30%, Airbnb's North American GBV fell significantly, such as in May 2021 and March 2022.

Airbnb's post-epidemic forecast: As the demand for working from home in the United States weakens, Airbnb's growth rate will slow down to normal and may not be as expected in the short term.

According to the data from Q4 2022, the number of people returning to work is close to 50%, so it can be predicted that Airbnb's North American GBV is likely to fall further. After the epidemic, the demand for working from home will gradually decrease, so Airbnb's growth rate in the future will not continue the explosive high growth, but slow down to normal.

Airbnb’s first competitive advantage: Its strong “ community model ” operation leads to very high user stickiness.

Airbnb 's core competitiveness lies in its human touch " community model " , which creates a brand tone of " deep travel " by providing unique community operations for landlords and tenants . Airbnb, which has been deeply cultivating the " community model " for many years, has made its users very sticky, with a landlord retention rate of up to 90% and a tenant retention rate of 40% . Many users first register as tenants and then are converted to become landlords after a good experience. Its " community model " is difficult for competitors to imitate, because it not only requires strong operational capabilities, but also is difficult and has a long payback period. More competitors choose to access a large number of third-party listings / professional landlords for rapid expansion.

Airbnb’s second competitive advantage: the platform has an obvious flywheel effect, high user retention rate, faster rental of properties, and attracting more landlords.

The high retention rate has started the flywheel effect of Airbnb 's platform. Due to the high retention rate of users, the time for listings to be rented out on Airbnb is much faster than other listings. Data shows that the number of nights booked for listings registered by users on the Airbnb platform is 1.4-2.2 times that of unique listings of peers. Faster rental time means higher return rate, so landlords are more willing to upload listings on Airbnb . More listings make users more willing to rent on Airbnb , resulting in a further reduction in the rental time of listings, and the platform flywheel effect is evident.

Airbnb’s third competitive advantage: There is room to increase handling fees, and revenue can be further increased.

Airbnb 's profit model is to collect fees, namely take rate . As the industry leader, Airbnb charges a fee of 14% , which is at a medium level compared with its competitors Booking and Vrbo . Considering the brand premium and the flywheel effect that is more efficient than other platforms, assuming that Airbnb raises its prices to the same level as Booking , there is room for a 3% price increase.

Part 3. Summary

Airbnb, which made a lot of money during the epidemic, may not be able to continue its crazy high growth story in the face of economic downturn and short-term oversupply of leisure travel in the future. However, considering Airbnb's unique competitive advantages and the long-term stable development of the leisure travel industry, RockFlow Research Institute believes that Airbnb still has long-term holding value.

From: RockFlow Universe