Airbnb, leader in alternative accommodation

Listings from the company’s 4 million hosts are spread across 220 countries and 100,000 locations.

In 2021, 54% of revenue came from the North America region, 32% from Europe/Middle East/Africa, 7% from Asia-Pacific and 7% from Latin America.

Transaction fees for online reservations represent the entire revenue of the business.

Solid position

We believe Airbnb’s global online travel agency, or OTA, position will hold up over the next decade, driven by a leading alternative accommodation network (source of its narrow moat) of 4 million hosts and amassing over one billion guest arrivals since its launch in 2008 through 2021.

We believe this network advantage will be supported by continued expansion through different types of experiences over the next few years.

Airbnb is also well positioned to benefit from the ongoing shift to mobile bookings, as evidenced by the fact that Airbnb is one of the top 10 iPhone travel apps in 87 markets vs. Expedia (“ Narrow Moat ”) and 156 for Booking (“ Narrow Moat ”) Holdings, according to App Annie.

Increased competition

We anticipate some sustainability of remote work to increase long-term travel demand.

Threats from competition, regulation and structural costs dampen our otherwise favorable view of Airbnb’s network position in the online travel growth industry.

We expect Expedia and Booking’s investment in the vacation rental industry to increase over the next few years.

Google’s targeted entry/Alphabet (“ Wide Moat “), Meta-Platforms (“ Wide Moat “), Ali Baba, Amazon (“ Wide Moat ”) and others could double the current handful of players that have dominant scale, which would have a significant impact on profitability.

That said, replicating Airbnb’s network would take a lot of time and money, and we expect most of the aforementioned operators to deploy a metasearch model (which doesn’t control hotel relationships) rather than competition. directly with Airbnb’s OTA model (which controls hotel relationships).

Societal issues

Beyond competitive threats, Airbnb’s alternative lodging core faces opposition concerned about the industry’s impact on society (residents’ quality of life), security (code compliance), and the economy (cost of living).

Regulations could place requirements (such as sharing personal information with local governments) and restrictions (such as the number of days a listing can be rented) on hosts and guests, reducing demand and increases costs.

And on top of these regulatory costs, servicing individual vacation rental hosts can increase expenses over those seen in the traditional lodging industry.

Fair value recorded

After reviewing Airbnb’s third quarter results, we increased our estimate of fair value to $117 ($) per share from $113 to account for increased near-term demand and time value.

Our fair value estimate implies a 2024 enterprise value/adjusted EBITDA multiple of 19 times.

Demand from Airbnb, which has driven the travel industry’s recovery from the depths of the pandemic in April 2020, is beginning to moderate.

Our booking growth forecast is 16% (previously 17%) CAGR over the 2022-31 period.

As part of this forecast, we expect Airbnb bookings in 2022 to reach 165% of 2019 levels, up from 174% previously.

Our bearish view is driven by lower overnight expectations, mitigated by more sustainable nightly rates.

In the long term, we continue to see a continued increase in full-time and hybrid remote work in the United States, which is also driving demand.

Holiday rents

We see Airbnb’s online vacation rental share grow to over 50% in 2026, from 45% in 2019.

We expect Airbnb’s revenue take rate to increase from 12.8% in 2021 to 14% in 2031, aided by expanded experiences, insurance and promoted listing offerings, but mitigated by content hotelier and the competition.

We see Airbnb benefiting from short-term investments in the medium to long-term platform.

We expect operating and support costs as a percentage of revenue to be 11% in 2031 versus 17% in the pre-pandemic year of 2019, as short-term investments in trust and security decreases and automated customer service generates long-term savings.

Savings

We also expect product development spending to reach 11.5% of sales in 2031, compared to 20% in 2019, which was a heavier investment year (product development in 2018 as a percentage of sales was 15.9%), as Airbnb relies on a more comprehensive network funded by short-term investments.

Additionally, we expect Airbnb to reduce marketing spend to 17.8% of revenue in 2031 from 34% in 2019 (2019 was a heavier investment year, with marketing costs from 2018 to 30% of sales), as the company enjoys strong global brand recognition and a more comprehensive platform offering long-term.

As a result, we estimate that Airbnb’s revenue growth will average 16% to 17% (previously 18%) over the next 10 years, with operating margins continuing to increase to 30% in 2031. , compared to 17% in 2020 (before stock-based compensation; and 10% in 2019).

© Morningstar, 2022 – The information contained herein is for educational purposes and provided for informational purposes ONLY. It is not intended and should not be considered an invitation or encouragement to buy or sell the securities listed. Any comment is the opinion of its author and should not be considered a personalized recommendation. The information in this document should not be the sole source for making an investment decision. Be sure to contact a financial adviser or finance professional before making any investment decisions.