Cheaper Cheaper Airbnb Charm Sook Giyeol Seo’s Silicon Valley Now

I’m standing in front of Airbnb’s headquarters in San Francisco. Airbnb came back from the hell of the corona pandemic and posted record profits in the third quarter. Can they sustain this growth during the peak holiday season, starting with Thanksgiving this week?

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Brian Chesky, CEO of Airbnb, recently had a series of interviews with US media to explain the outlook for travel demand and new policies in preparation for the winter peak season. Let’s look at that.

“When you go into a recession, the most important thing for guests is going to be price,” CEO Chesky told CNBC last week. Airbnb started as a cheaper alternative to hotels, so we’re focusing on that.” It was explained that a reasonable price was the most important factor.

He also expressed his opinion on the recession. In an interview with Yahoo Finance yesterday (20th), CEO Chesky said, “It’s a similar situation to the financial crisis of 2008 (when we started),” and “a lot of people who hadn’t considered sharing a home are now thinking about it. .”

As you well know, Airbnb was founded in San Francisco in 2008, at the height of the global financial crisis originating in the United States. With job cuts and rising prices draining their wallets, people looking to earn extra income started sharing parts of their homes.

Now, 14 years later, Airbnb has grown rapidly based on its network of hosts and guests. As of last year, it has grown significantly to more than 300 million annual bookings and 6 million properties provided by 4 million guests worldwide. Airbnb was thus listed on NASDAQ in the second half of 2020. According to Apptopia, Airbnb’s global accommodation market share is estimated at 25.97%, second only to Booking.com (34.57%).

There are two main business models. These are fees you get for accommodation and trips that share space, or EXPERIENCES that provide local experiences. It is a typical platform company. Accommodation hosts are typically known to pay ~3% of the room rate, and experience hosts ~20% as commission. Guests using these services pay a commission of 6-12% of the booking amount.

Back in the present, Airbnb announced some important policy changes this month. In these interviews, Chesky explained the new policy. We introduced a system called Airbnb setup. We’ve paired potential new hosts with experienced, respected Superhosts to make sharing arrangements easier. Through this, it is an attempt to lead the supply of more accommodation.

Air Cover is a form of insurance, but the coverage has been increased further than last year. It is a system that protects guests from damage to their home or place after using the accommodation, and the insurance limit has tripled from $1 million last year to $3 million this year. Through this, we intend to lead more guests to share their homes with peace of mind.

To encourage sharing accommodation, Chesky himself even put up a room in his house on Airbnb. It was shared under the name ‘Beyond the Airbed’. It is really his house. “I wanted to show people that if I can do it, they can do it. It’s accessible. This is my real home,” he said in an interview.

Along with this, we have introduced a new system for guests who express their dissatisfaction with the increased prices. Anyone who has booked accommodation through Airbnb will agree. First of all, when you search, the cost for a night’s accommodation goes up, but when you go in and try to book, it the hidden cleaning fee is more than the daily accommodation. fee.

The average price per night for an Airbnb stay has risen 40% since before the pandemic, and as of the last two quarters, the average cost per night is said to total $156. If converted to accommodation earned, it’ r an amount over 200,000 has been earned, so it can no longer be considered cheap accommodation. In particular, the cleaning cost I mentioned has increased dramatically. According to AirDNA, the average cost of cleaning shared accommodation last month increased by almost 30% compared to the same period in 2019.

To address this concern, Airbnb has improved its search ranking algorithm by prioritizing the total price, excluding taxes, for guests instead of just showing the cost per night. Indeed, it was fishy in a way, but I went in the direction of solving it.

“It allows the highest-rated space with the most reasonable total price to rank higher in search results,” Chesky explains. Maintaining the economy is of utmost importance.

In addition, clear guidelines have been revealed for recently controversial cleaning issues. Even after paying an expensive cleaning fee, some hosts have reported asking to remove the bed sheets or tidy up the house. “You don’t have to clean up when you leave,” Chesky said. They say not to make unreasonable requests of guests and plan to establish standards for what can be asked for before check-in.

Airbnb’s finances have been good this year. Thanks to the explosion in travel demand, which had been on hold since the pandemic, Airbnb recorded a record third quarter performance. July to September is the peak summer season, including the summer holiday period. Third quarter revenue hit a record $2.884 billion, up 29% year over year. (Consensus $2.85 billion) Net income rose 42% to $1.214 billion, surpassing $1 billion for the first time ever. ($1.03 billion consensus)

However, his own forecast for the fourth quarter disappointed the market. It expected fourth-quarter revenue to be between $1.8 billion and $1.88 billion. On average, this is below Wall Street’s forecast of $1.87 billion. “While the impact of COVID-19 is fading, macroeconomic uncertainty remains,” the company said. Overseas travel has not improved evenly, but we expect it to continue to improve,” he explained.

Its own fourth-quarter forecast, which fell short of market expectations, sent the stock price down despite record earnings. The day after the earnings release, the stock fell more than 10% and is still trading below $100.

But is there really only such a negative attitude? There are also positive reviews. It is a very profitable company. Looking at the third quarter results, net income increased 200% year over year to $1.2 billion. The net profit margin is as high as 42%.

The secret is thanks to a strict cost diet during the corona pandemic. During the pandemic, 25% of the employees were laid off, and CEO Chesky said, “Regardless of the economic situation, we will reduce operating costs and increase profitability by shedding organizational weight.” It has fewer employees than its competitors, generating $1.3 million in revenue per employee.

In particular, in reducing variable costs, we have recently significantly reduced marketing costs. Sales and marketing costs are lowest compared to competitors. (Explanation Airbnb) Airbnb is 13%, compared to 39% from Booking.com, 46% from Expedia, and 51% from TripAdvisor.

So, how does Wall Street view Airbnb this way? A total of 25 financial investment firms cover Airbnb, with 13 buying, 11 neutral, and 1 selling. The purchase rate is just over half. As you can see, the target price fell until March, then rebounded in April, followed a downward trend, and then rose again in August. Since then, the slope has decreased, but continues to decrease. Our average target price is $130.55. Based on the closing price, there is a potential of 37% upside. It ranges from a low of $98 to a high of $165.

Can we have a look at the latest report? The Citigroup report that came out five days ago caught my eye. The upgrades released for this winter season have been reviewed positively. The Airbnb arrangement has made it easier for new guests to start sharing rooms, so they expect the supply to continue to grow. The outlook for 2023 is mixed with positives and negatives, but the movement of travel demand until the third quarter will continue into the fourth quarter. We maintain our Buy rating and $140 price target. I saw a potential of 47% face to face.

Most of the rest are reports that came out before or after the third quarter earnings announcement. We maintain our ratings on most of our stocks, but revise our target prices. Only Goldman Sachs has issued a sell recommendation. We lowered our price target from $100 to $98.

Of course, Airbnb’s changes this time will not satisfy guests and guests. However, Chesky’s efforts to raise profitability to the highest level in the industry by cutting costs deserve recognition. Let’s see if Airbnb, which is trying to increase the supply of guests in order to continue its continuous growth, can overcome the recession with its strong stamina and stand tall as a travel leader.

Silicon Valley = Correspondent Seo Gi-yeol philos@hankyung.com