Airbnb – Play or Pass
As someone who is currently travelling across Europe, I have suffered at the hands of Airbnb’s relentless rising prices for the last few months.
Anecdotally it offers a more sustainable long-term travel alternative, but in reality, while it provides a different experience, Airbnb’s price point isn’t far removed from standard hotel pricing.
Recent figures from two companies involved in tracking short-term rentals and hotel stays, STR and AirDNA found that using Airbnb is almost as expensive as booking a hotel room.
“The price per night in July for an Airbnb in Toronto for a one-bedroom unit was $214 dollars while a hotel room was $247, a difference of $33 dollars”
While I accept that Airbnb’s value proposition was focused on offering a different experience as opposed to being a cheaper alternative, I found the narrowing of the spread an interesting feature from an investing standpoint. Surely higher prices mean higher profits.
And sure enough, last week’s quarterly earnings report showed just that.
In short, Airbnb Q2 2022’s financial results confirmed that the pandemic has now supercharged the viability of their business.
Nights & Experiences (N&E) booked in Q2 were 103.7 million, the largest quarter in the company’s history (+25% YoY and +24% vs Q2 FY19). Most importantly, the YoY bookings are now 10% higher than the pre-pandemic peak.
As suspected, gross booking value was up significantly. Jumping 73% vs Q2 FY19 driven primarily by a 40% increase in average daily rates.
Alex Morris has some more in depth insights into Airbnb on his substack worth checking out.
All this to say that Airbnb now have more customers and are able to charge them a lot more which in turn has increased their bottom line.
A 40% increase in charge rates against the backdrop of high single-digit inflation... Is Airbnb the ultimate inflation hedge?
I’m being facetious, kinda.
Of course, much of this increase in the daily rates is driven by the post-pandemic surge in demand, and a growth rate of this size is not maintainable as they edge closer to hotel pricing; Trees can’t grow to the sky and all that.
Still, with little direct competition, a growing consumer base, an ever changing approach to the way we work and travel and a well-established network, it makes for a compelling long-term play.
Prices are still a bit lofty, but I’m not sure you will ever be able to buy this one at ‘attractive’ multiples.
For now, I like the company, just not the price (both of the stock and the houses they list).
Pull backs in stock price are buying opportunities from here.
I'll leave the arguments of how the emergence of Airbnb and its distortion of cap rates has perpetually fed the surge in property prices and destroyed the local market's ability to get on the property ladder for another day. It's a bit heavy for a Thursday.