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Founded in 2008 and headquartered in California, Airbnb is a homestay platform that allows travelers to discover and book unique listings around the world through websites or mobile phones. In December 2020, Airbnb landed on the NASDAQ, but due to the impact of the epidemic on business operations and the valuation of growth stocks under inflation expectations, Airbnb's stock price experienced sharp fluctuations after listing, and its performance in the past year was flat.
You can see that in March and May, Airbnb, like other growth stocks, experienced a sharp decline in valuations. Since then, due to the impact of the Delta virus strain on business development, the stock price has basically fluctuated in the range. Starting from the expected control of the epidemic in August, the valuation gradually repaired, until the good Q3 performance was handed over, as well as relatively strong guidance, and the stock price experienced a wave of sharp rise. But due to the inflation hammer, the Fed's acceleration of tapers and the expectation of 3 possible interest rate hikes next year, growth stocks have begun to experience another round of killing valuations; at the same time, the emergence of the mutant Omicron has cast a shadow on the wine tourism industry, and Airbnb's stock price has suffered a double blow.
But in pathology, Omicron is highly contagious but lowly toxic, and is expected to end the epidemic and become flu in the future. In this context, Airbnb, the representative of the post-epidemic era, can focus on it. In addition, Airbnb's fundamentals have a more important point - the industry paradigm shift. Let's analyze this focus.
01 Airbnb's industry paradigm shift
The paradigm shift of the industry sounds more abstract. How to understand this thing? In fact, in the field of consumption, it can be said that this is a change in consumer behavior, to give a few examples: smart phones replace traditional mobile phones, smart trams subvert fuel vehicles, milk tea and coffee become standard...
For Airbnb, then, there is this paradigm shift, with CEO Brian saying, "The world is undergoing a revolution in how we live and work." Of course, Silicon Valley has a tradition of Fake it then make it, and the Brian brothers' words have to be discounted somewhat. But this matter is not empty, we look at the data.
It can be clearly seen from the above figure that the proportion of long-term rentals (travel rents > 7 days) has increased significantly from 21% to 41%, and this trend is still continuing - the proportion of people in the spring when the epidemic is concentrated has risen sharply (due to the inability of people to move freely), but from the recovery after the gradual control of the epidemic in the second half of the year, the proportion of long-term rental tourists has not continued to decline, but there is still an upward trend.
Brian also said on the call that long-term residency (more than 28 days) is the fastest growing segment, a trend that was already there before the pandemic. One of the reasons behind this is the significant increase in flexibility in work, and the pandemic has accelerated the process. According to a July study by garter, global remote workers will account for 32 percent in 21 years, compared with 17 percent in 2019. In the report, Garter also gave a forward-looking forecast, this shift is the trend of the times, and it is almost impossible to reverse this momentum.
In Airbnb's Q3 call, it was also mentioned that the proportion of flexible work will still accelerate. Some of the phenomena given include world-class giants such as Procter & Gamble, Amazon, Ford, etc. have recently increased the flexibility of employees to work remotely, and more companies will follow in this footstep, especially in the expectations of meta-universes (such as Meta's Workplaces) – which means that people's flexibility to travel is rising, rather than mostly traveling only on weekends, as is the traditional way. Airbnb also gives some interesting evidence of this, such as Monday and Tuesday are the fastest growing travel times.
To sum up, people's work and lifestyles are undergoing drastic changes, and Airbnb is undoubtedly the beneficiary. From Airbnb's perspective, the main points of change are as follows:
(1) Due to factors such as the flexibility of work, people can travel at any time;
(2) Long-term residence is growing rapidly, and the proportion is constantly increasing;
(3) People travel everywhere – more than 100,000 cities have booked at least once during the pandemic;
(4) More people are interested in becoming a host.
These changes will drive Airbnb's continued growth. Let's take a closer look and take a closer look at the Airbnb business.
02 Airbnb's business ecosystem
In 2008, Brian and two other partners, Joe and Nate, founded Airbnb, with Brian and Joe being the company's first hosts. The Airbnb platform now has more than 7.4 million hosts in 220 countries around the world. In 19 years, the company had 54 million active tenants and 247 million tenants, so it can be said that Airbnb has been in a state of barbaric growth for more than 10 years.
Judging from the popularity of Google search, the popularity of Airbnb in the past year can be said to crush the biggest competitor Booking (overseas Ctrip, with a market value of about $100 billion).
Airbnb's vast ecosystem includes five core segments: landlords, tenants, employees, communities, and investors. The host is the core supply side of the Airbnb platform, similar to the Taobao/Tmall store to Alibaba. The quality of hosts and listings directly determines the trust of consumers in the brand, so In the past, Airbnb has been vigorously maintaining hosts, such as issuing $250 million in support and subsidizing a large number of cancellations and other changes in march of the epidemic.
In the Q3 conference call, the CEO also elaborated on the importance of hosts again : "We continue to educate the global market that it is 'hosts' that make Airbnb different." Airbnb continues to recruit new hosts in the process of development, while also maintaining the quality of hosts, such as making a similar one-on-one help project "Ask a Superhost" to help novice hosts get started quickly and do a good job. When the project went live in May this year, it was carried out in nine countries and has now expanded to 196 countries.
Tenants, employees, communities, investors and other ecological parts are more intuitive to understand. The impact of tenants/consumers on Airbnb is self-evident, and Airbnb continues to update iterative service content, such as the recent winter release, updating a translation software to make cross-border travel more convenient.
In an Airbnb and CEO rating survey, 95 percent of respondents said they would recommend it to a friend, and up to 99 percent recognized CEO Brian, which is undoubtedly in stark contrast to Zuckerberg, who was just named "Villain of the Year." Overall, the charm of the platform economy is that both B and C ends simultaneously enhance the circuit, promoting the continuous evolution of the platform, the best example is Amazon. Airbnb's platform is ecologically high-quality and the moat is deep.
03 Business situation
Airbnb's business model is easier to understand, the core of the business lies in the number of bookings, and the revenue side is to take a fee from both the host and the consumer - charging the host 3% of the platform usage fee, and the consumer charging 14%. Due to the continued impact of the epidemic over the past two years, Airbnb's operations have fluctuated tremendously, and the absolute value does not seem to matter, what is important is the recovery trend.
Airbnb 19Q1-21Q3 bookings and revenue
From the above chart, we can intuitively see that Airbnb's scheduled volume and revenue have continued to repair since Q3 last year (there is an impact of the Delta virus strain in the middle). According to the latest quarterly earnings report, Airbnb revenue was $2.24 billion, up 67% year-on-year, higher than the market expectation of $2.07 billion, compared with Q3 2019, and the net profit was $834 million, a sharp increase of 280% year-on-year, and EPS was $133 million, significantly higher than the market expectation of $75 million.
However, in the previous financial analysis, we also pointed out a problem, GBV (Gross Booking Value, total order value) and the number of bookings are slightly lower than market expectations. Specifically, GBV increased by 48% year-on-year to $11.9 billion, and 79.7 million bookings, up 29% year-on-year.
So in the case of less than expected bookings and GBV, why did the revenue exceed expectations? This is mainly due to the increase in take rate. As shown in the figure above, the take rates for Q3 in 19, 20 and 21 were 16.9%, 16.7%, and 18.8%, respectively. The main reason for the takerate improvement was a large number of forward bookings in the first two quarters, which did not recognize revenue, while there was a large number of check-ins (and thus revenue recognition) in the current Q3 period. Therefore, in the future, Airbnb's take rate has a downward trend, which also reflects competition and concessions.
Overall, Airbnb's scheduled volume and revenue have been steadily repaired, coupled with the high probability of ending the epidemic and the industry paradigm shift next year, and the operation is expected to continue to grow. Let's take a look at the other business surfaces.
21Q3 Airbnb's EBITDA profit reached $1.1 billion, the highest ever, and accounted for 49% of revenue - which also confirms Airbnb's strong profit potential and can give the market strong confidence.
On the cost side, Airbnb's biggest year-on-year increase in cost was marketing costs, up 156% year-on-year, burning $291 million. Other costs such as O&M, R&D and management increased by 37%, 61% and 17% respectively year-on-year, which were significantly lower than the growth rate of revenue. For high-growth Internet companies, the market's tolerance for burning money to obtain customers is relatively high, and the essence behind it lies in the natural Matthew effect of the Internet platform, which burns out the scale and barriers after the winner takes all. Overall, Airbnb's cost control is excellent.
From a geographical point of view, North America remained stable, 21Q3 bookings increased by 10% year-on-year, mainly driven by the United States; Europe and the Middle East did not give specific figures, roughly restored to the level of 19Q3; Latin American bookings increased by 20% compared with 19Q3, domestic and cross-border tourism remained strong; the Asia-Pacific region fell compared with 19Q3, mainly due to cross-border tourism in this region, which was more seriously affected by the epidemic, and the lockdown in Australia and China's short-term rental restrictions on homestays also caused adverse effects. Overall, Europe and the United States, which have a stronger unit economic effect, have driven the overall profit growth, and other regions have contributed less, but with the recovery of the epidemic, other regions are expected to accelerate growth.
It is worth noting that the proportion of cross-border bookings this year continued to increase from 20% and 27% of Q1 and Q2 to 33%, and management expects this to continue to grow in the future, making a positive contribution to the subsequent quarterly revenue (the cumulative cross-border bookings in October recovered from 2019 to 80%).
04 Valuation and Risk
According to the industry analysis given by the previous management, the global travel market size is about 560 billion US dollars, and the current penetration rate of Airbnb is about 5.3%, and there is still a broad space. Airbnb is also continuing to eat more markets through continuous innovation, such as launching 100 updates in March this year and upgrading 50 services (including the translation functions mentioned earlier) in November. In addition, the scheduling time for the "Im Flexible" project was increased to 12 months...
Airbnb's innovation and brand influence will continue to deepen the moat, and we also compared its google search trends with Booking, which shows Airbnb's strong influence on consumer minds. There's also data that shows that about 90 percent of Airbnb's website visits in 20 years were free traffic, compared to about 50 percent for Booking.
Finally, take a look at valuations:
Airbnb expects Q4 revenue of $1.39 billion to $1.48 billion and market expectations of $1.44 billion (seasonal volatility, Q4 is not the peak season so revenue is lower than Q3), which is basically in this range. Then according to this year's expected results to guide the valuation, ev/sales is about 19x (at a low level, see chart above).
While this guidance may not be met by Omicron, Airbnb's repair and growth next year is likely to be very strong in the face of the expectation of a high probability of the end of the epidemic and the acceleration of the paradigm shift of the industry, and this position is worth paying close attention to. The main risks are the recurrence of the pandemic and the continued valuation pressures brought about by inflation.
Note: This article is original by the US stock research agency team, please indicate the source when reprinting, thank you!