Airbnb (NASDAQ: ABNB) is a company that doesn't need much of an introduction. In a nutshell, Airbnb provides a platform where property owners can list vacation rental accommodations ranging from a spot on their couch to an entire large-scale mansion. Since its founding in 2007, Airbnb has evolved into a true disruptor, changing the way the world books travel.
Despite its global reach, millions of hosts, and hundreds of millions of nights booked on its platform already, Airbnb could still have lots of room to grow. Let's take a closer look at Airbnb's business, its growth strategy, recent developments, and the company's performance history.
Airbnb company overview
Airbnb is well-known by most Americans (and millions of people around the world), but the company actually had very humble beginnings. The company was founded in 2007, when conference attendees in San Francisco needed a place to stay when area hotels sold out. Co-founder and current CEO Brian Chesky and friend Joe Gebbia set up three air mattresses in their apartment. This is where Airbnb got its name.
Fast-forward about 14 years, and Airbnb has evolved into a massive travel booking platform. Millions of "hosts" list their properties -- either space in a home or an entire apartment or house -- on the platform, and hundreds of millions of people around the world have booked a stay on Airbnb's platform. Today, Airbnb has a presence in 100,000 cities (not a typo) in over 220 countries around the world.
Short-term vacation rentals have been Airbnb's bread and butter since its inception, but that isn't all Airbnb lists on its platform. Long-term rentals have become a particularly interesting part of the business and are growing rapidly in popularity on the platform. In fact, the company reported in the second quarter of 2021 that long-term stays (28 days or more) are the fastest-growing part of the business.
Airbnb also offers the ability to book experiences to complement its rental listings. As a basic example, let's say you book a vacation rental in Napa Valley. Airbnb might give you the opportunity to book a tour of a winery at the same time.
Airbnb makes its money by taking a percentage of the bookings on its site. Most Airbnb hosts pay a service fee of 3% when their property is booked (although some pay more), and guests pay a service fee of 14.2% of the booking subtotal. There's also an option for the host to pay the entire fee, which ranges from 14% to 16%. The latter structure is mandatory for hotels that list on Airbnb, but the majority of hosts choose the split-fee structure where the host and renter both pay. For experiences, Airbnb charges the host a 20% service fee and doesn't charge anything to the guest.
To put Airbnb's size into perspective, consider that in 2020, more than 193 million nights and experiences were booked on the platform despite the lockdowns and other COVID-19 pandemic restrictions that were in place throughout much of the world during the year. More than 4 million hosts list their properties on Airbnb, but the company has said there's demand for millions more.
How big could Airbnb get?
Airbnb is the most valuable "lodging" company in the market and generates annual revenue of $3.6 billion on its platform. So, it might seem like the company is starting to max out its potential.
However, it's worth pointing out that the vast majority of vacation rentals around the world are still booked through more traditional methods, such as through hotels or independent vacation property managers' websites.
Airbnb estimates the short-term rental market in areas where it has a presence to be $1.2 trillion in size. And that doesn't include the massive opportunities in long-term vacation rentals or selling experiences. Including those things, Airbnb estimates a $3.4 trillion addressable market opportunity. It's not going to get it all, but the point is that there could be tons of room to grow from here.
Like most other companies, the biggest news item affecting Airbnb's business in recent history has been the COVID-19 pandemic, which was devastating for the travel industry. Stay-at-home orders caused travel bookings to grind to a halt in early 2020, and even when things started to open back up, capacity restrictions and social distancing measures made traveling impractical in many cases.
In 2020, Airbnb's bookings were down 41% year over year as a result of the global travel disruptions. Revenue dropped by 30%, and while Airbnb wasn't profitable before the pandemic, its loss was considerably wider in 2020 than in 2019. The business is already coming back nicely in 2020, but the travel climate is far from normal. International travel still hasn't come back much, nor has business travel, so the company isn't exactly back to business as usual in 2021, but its business could be one of the biggest beneficiaries as the world gradually returns to normalcy in the coming years.
The other most significant recent news item was the company's IPO, which we'll discuss in more detail in the next section. Airbnb is new to the public markets, and as you might expect from a high-growth stock, it has been rather volatile.
Airbnb stock price
Airbnb hasn't been a publicly traded company for too long, having gone public in December 2020. And it's a little difficult to understand the stock's performance since that time at first glance.
Here's why. Airbnb went public at an IPO price of $68 per share and trades in the $150 ballpark as of August 2021. But unless you're an investment bank, or one of their high-net-worth clients, chances are you wouldn't have been able to actually buy shares at that price. By the time the stock opened on its first trading day, the share price was $146, so that's about what you would have paid if you hit the "buy" button as soon as you possibly could.
Since that time, Airbnb has taken investors on quite a roller coaster ride. Following the IPO, the stock soared to as high as $220 in late February 2021 and then started quite a downward slope, falling below its day-one trading price in May. As of late August, Airbnb trades for a little more than $150. But the key investor takeaway is that Airbnb's performance should be based on a $146 opening price on its first trading day, not the official IPO price. Here's a look at how Airbnb has performed through its first nine months or so as a public company: