Equity Research Report
Airbnb Inc.
PREPARED BY SAMI KHDAIR
The Arab Finance Society
Empowering Arabs pursuing
financial careers in the US,
Europe, and Canada!
1.1 Company Description
Airbnb is a global online marketplace that connects
people who want to rent out their homes or apartments
with travellers seeking unique and affordable
accommodations. Founded in 2008, the company has
grown rapidly and now operates in almost every country
and region across the globe. Airbnb's platform allows
hosts to list their properties and provide detailed
descriptions, photos, and pricing information, while
guests can search for and book accommodations based
on their preferences and budget.
Airbnb's business model is based on the sharing
economy, which emphasizes the efficient use of
resources and the creation of new economic
opportunities for individuals and communities. By
enabling hosts to monetize their unused or under-
utilized spaces, Airbnb provides a flexible and scalable
solution to the growing demand for affordable and
personalized travel experiences. At the same time,
Airbnb's platform offers guests a wide range of options
for accommodations, from budget-friendly shared rooms
to luxurious villas and unique experiences such as
treehouses, yurts, and houseboats.
Airbnb has disrupted the traditional hospitality industry
and has become a popular alternative to hotels and other
traditional lodging options. The company's success is
driven by its innovative business model, user-friendly
platform, and commitment to creating a sense of
community and belonging among its hosts and guests.
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2.1 Industry Overview
Airbnb operates in the hospitality and lodging industry, which has experienced significant
growth in recent years. The industry is characterized by the use of technology to connect
travelers with lodging options, ranging from traditional hotels to vacation rentals and
home-sharing platforms like Airbnb. The industry has been driven by a number of factors,
including the rise of the sharing economy, the increasing popularity of travel and tourism,
and the growing use of mobile devices to book travel accommodations.
One of the key trends in the industry has been the shift towards alternative lodging
options, such as vacation rentals and home-sharing platforms. This has been driven by a
desire for more authentic and unique travel experiences, as well as the lower cost and
greater flexibility offered by these options. Airbnb has been at the forefront of this trend,
offering a platform that allows hosts to rent out their homes or apartments to travelers.
Revenue in the lodging and hospitality market is projected to reach $446.5 billion U.S.
dollars in 2024. Revenue is expected to show an annual growth rate (CAGR 2024–2028) of
3.32%, resulting in a projected market volume of $508.90 billion U.S. dollars by 2028.
Generally, a 3.32% CAGR is quite low for growing markets; however, as this industry is
quite mature and as Airbnb is disrupting this large mature market, the growth opportunity
ahead of Airbnb is much larger than the CAGR rate.
It is projected that the entire airline industry will have steady growth in 2024, decreasing
to 10.1% YoY growth while continuing to converge towards global GDP growth. However,
with the geopolitical tension and the fact that almost 42% of countries around the world
are having elections this year, there is also huge political tension globally, which could
have some effect on tourism as a whole.
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3.1 Management Analysis
Brian Chesky: Chief Executive Officer:
Brian Chesky is the co-founder and Chief Executive Officer of Airbnb and sets the
vision and strategy for the company. Since founding the company in 2007, Airbnb has
become a community of over four million hosts who have welcomed more than 800
million guests across 220+ countries and regions.
Hiroki Asai: Global Head of Marketing:
Hiroki Asai oversees all of Airbnb’s marketing efforts, as well as Airbnb's in-house
creative teams. Hiroki is responsible for maintaining Airbnb's strong global brand and
sharing the story of our millions of hosts who offer unique homes and experiences to
guests around the world. Hiroki spent 18 years at Apple and served as Vice President of
Global Marketing Communications and Executive Creative Director where he was
responsible for a variety of iconic marketing campaigns for a range of products,
including the iMac, iPod, iPhone, iPad, and Apple Watch.
Ari Balogh: Chief Technology Officer:
Ari Balogh oversees Airbnb’s Engineering and Data Science organizations. This includes
leading their Infrastructure, IT, and Information Security teams, as well as core
platforms like Trust, Payments, Community Support, and Growth & Traffic. Prior to
joining Airbnb, Ari was VP of Engineering at Google, where he was responsible for core
infrastructure and data platforms, including the data and serving systems behind
Google Search.
Tara Bunch: Global Head of Operations:
Tara Bunch oversees Airbnb’s Community Support, Trust, and Payments teams,
responsible for supporting hosts and guests in over 220 countries and regions, and
payments in 63 currencies. Prior to joining Airbnb, Tara spent eight years at Apple
where she was most recently Vice President of AppleCare, the company’s technical
support and repair organization that reaches billions of consumers worldwide.
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4.1 Competitive Advantages
Strong brand recognition: Airbnb has established a strong brand
identity and reputation as a trusted platform for home-sharing and
vacation rentals. This has helped to attract a large and loyal user
base, as well as differentiate the company from its competitors.
Large and diverse inventory: Airbnb has a large and diverse
inventory of listings, ranging from traditional homes and
apartments to unique and unconventional accommodations like
treehouses and yurts. This gives travelers a wide range of options
to choose from and helps to differentiate Airbnb from other lodging
providers.
User-friendly platform: Airbnb's platform is user-friendly and easy
to navigate, making it easy for travelers to find and book
accommodations. The platform also includes features like reviews
and ratings, which help to build trust and confidence among users.
Innovative business model: Airbnb's business model is innovative
and disruptive, allowing hosts to rent out their homes or
apartments to travelers. This has helped to create a new market for
alternative lodging options and has disrupted the traditional hotel
industry.
Strong community focus: Airbnb has a strong focus on building and
nurturing its community of hosts and guests. This includes
providing support and resources to hosts, as well as fostering a
sense of community and connection among users. This has helped
to build loyalty and trust among users and has contributed to
Airbnb's success.
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5.1 Competitors Analysis
Hotels have emerged as significant competitors to Airbnb in the lodging industry,
presenting both challenges and opportunities for the short-term rental platform.
Hotels have responded to the competitive threat posed by Airbnb by adapting their
pricing strategies to align more closely with short-term rental rates.
Traditionally, hotels have employed dynamic pricing models, adjusting room rates
significantly during high-demand periods. However, in response to Airbnb's
presence and pricing structures, hotels have started benchmarking their rates
against short-term rental prices to remain competitive and offer value to event
attendees and travelers.
Hotels differentiate themselves from Airbnb by providing a more consistent and
reliable service, emphasizing amenities such as room service, 24-hour security, and
cleanliness. These pillars of hospitality have been central to hotels' success for
centuries, and they continue to prioritize these aspects to attract and retain guests.
Additionally, hotels have been expanding into extended-stay accommodations and
service apartments to cater to changing traveler preferences, such as remote work
and longer stays.
Despite the strengths of hotels in terms of service quality and brand reputation,
Airbnb has disrupted the traditional hospitality industry by offering unique and
affordable accommodation options to travelers. Airbnb's platform provides a diverse
range of lodging choices, including entire homes, apartments, and unique
properties, appealing to travellers seeking authentic experiences and local
immersion. The flexibility and variety offered by Airbnb have resonated with a
growing segment of travelers, particularly younger demographics opting for short-
term rentals over traditional hotels for leisure travel.
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6.1 Financial Analysis: Metrics
Airbnb evaluates its performance based on two metrics: "Nights and Experiences
Booked" and “Gross Booking Value (GBV)." Nights and Experiences Booked
represents the total number of nights booked for stays and the total number of
seats booked for experiences on the platform. In 2021, Airbnb recorded 301 million
nights and experiences booked, which increased to 394 million in 2022, reflecting a
31% growth. The growth in Nights and Experiences Booked is driven by attracting
new customers to the platform and increasing activity from repeat customers across
all regions, particularly Europe, Latin America, and Asia.
Gross booking value (GBV) represents the dollar value of bookings on its platform in
a given period. In 2022, Airbnb reported a GBV of $63.2 billion, reflecting a
substantial 35% increase from $46.9 billion in 2021. This growth was primarily
attributed to an increase in nights and experiences booked, indicating the
platform's ability to attract and retain customers and drive revenue. GBV includes
host earnings, service fees, cleaning fees, and taxes, net of cancellations and
alterations that occurred during the period.
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6.2 Financial Analysis: 2022
20% increase in current assets, which was mostly because of the increase in cash and cash
equivalents and accounts receivable. This data also led to total assets growing by around 17% YoY.
Current liabilities increased by 25.46% due to a 1 billion dollar increase in funds payable to
customers; however, long-term debt remained relatively unchanged, which led to an overall
increase of 17.2% in total liabilities.
Airbnb has a quick ratio and current ratio of 1.78, a debt-to-equity ratio of 0.25, and a ROA of
29.11% (primarily due to 92% of its assets being current assets, which can be invested into
projects with high returns quickly and efficiently). Many people forget that Airbnb is a software
company and not a hotel with actual physical properties. Therefore, this company should be
compared to other software companies in this field (Airbnb is a C2C business model).
Revenue from 2021 to 2022 grew by over 40.17%, and the cost to obtain that revenue actually
decreased by 2% from 2021. In 2022, Airbnb increased their marketing spending by 27.8% to
increase brand awareness and create their largest profitable year, creating $1.893 billion in net
income. For 2022, their basic EPS was 2.97, which is 6.2x 2021.
Airbnb’s gross margin was 73.14%, a 56.87% profit machine; however, they had a 23.72% operating
margin. Sales and marketing expenses increased by $329.9 million, or 28%, in 2022 compared to
2021, primarily due to a $197.8 million increase in marketing activities associated with our Made
Possible by Hosts, Strangers, AirCover, Categories, and OMG marketing campaigns and launches.
Lastly, the cost of revenue as a percentage of revenue decreased from 19% to 18% during 2022,
showcasing an increase in return on deployed operating capital.
For 2022, Airbnb’s cash flow from operating activities grew by over 48%, and the main reason this
increase occurred was because of the higher profitability that occurred this year ($1.893 billion for
net income). For investing activities, the net cash outflow was only $28 million, and the only large
category that has changed the investing opportunities over the year has been the purchases and
maturities of marketable securities.
In regards to cashflows from financing activities, total financing cash flows decreased for the first
time in 3 years, which was predominantly due to the repurchase of shares and very minimal
acquiring of debt. In 2022, free cash flow was $3.4 billion, compared to $2.3 billion in 2021,
representing 41% of revenue. The increase was primarily driven by revenue growth, margin
expansion, and significant growth in unearned fees. Finally, all the effects of operating, investing,
and financing on cash flows led to a 25% increase in cash YoY.
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6.3 Financial Analysis: 2023
Nights and experiences Booked grew by 12% in Q4 2023 compared to a year ago. They
exited 2023 with the highest quarterly growth rate of the year for first-time bookers. 55%
of their gross nights were booked through the Airbnb app during Q4 2023, compared to
50% in Q4 2022, and of course, their app does provide a more seamless experience for our
guests. Throughout 2023, they introduced several features to help provide more affordable
options for guests, from new pricing tools for hosts to increased price transparency for
guests. Since launching these features, 1.4 million hosts have used Similar Listings, a
feature that lets hosts compare their listings to others in the area.
Additionally, since launching Total Price Display in early 2023, they’ve seen nearly 300,000
listings remove or lower their cleaning fees. By the end of the year, nearly 40% of their
active listings charged no cleaning fee at all. Revenue increased to $2.2 billion in Q4 2023
from $1.9 billion in Q4 2022, driven by solid growth in nights and experiences booked, a
modest increase in average daily rate ("ADR"), and an FX tailwind. In Q4 2023, net loss
included non-recurring tax withholding expenses and lodging tax reserves of
approximately $1 billion. Excluding these expenses and after applying their anticipated
long-term effective tax rate of 21%, our adjusted net income was $489 million, compared
to $319 million of net income in Q4 2022.
Adjusted EBITDA increased to $738 million in Q4 2023 from $506 million in Q4 2022,
which demonstrates the continued strength of their business and discipline in managing
their cost structure. The adjusted EBITDA margin was 33%, compared to a Q4 2022
adjusted EBITDA margin of 27%. Their strong cash flow enabled them to repurchase $750
million of their Class A common stock in Q4 2023. Share repurchases during the full year
2023 totaled $2.25 billion, and they reduced their fully diluted share count from 694
million at the end of Q4 2022 to 676 million at the end of Q4 2023.
Lastly, as a part of their international expansion strategy, they’re investing in brand
awareness and consideration in less mature markets. They’re also focusing on localization
efforts to fuel growth. As a result, they’re seeing greater momentum for Airbnb across a
variety of regions, resulting in obtaining more than 5 million hosts, with over 7.7 million
active listings around the world.
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7.1 Growth Opportunities
Overall, the most growth Airbnb can have with their current operations is growing the number
of nights and experiences booked globally, especially in large markets and in markets they
have not entered. In 2022, Airbnb grew their total number of nights and experience book
globally by 30%, with a 16% increase in the North American market and a 42% increase in
EMEA.
Overall, North America and EMEA (which include the Middle East, Africa, and Europe) are the
largest markets they are currently in. In the USA, they generated $32 billion in gross booking
value, and in Europe, they generated $21 billion in gross booking value. As market size
proportions, this means that Airbnb currently owns a little over 13% of the entire USA market
(which is the largest market in North America) and over 18% of the European market.
The two markets they are not very invested in are the Latin American and Asia Pacific markets.
South America has a $22.5 billion dollar lodging industry, and the Asian Pacific market size is
around $18.4 billion dollars. Overall, both industries are quite small relative to their larger
markets, which adds to the uncertainty of Airbnb’s growth potential. They stated that for
2024, Airbnb will be focusing on the following 3 areas:
1. Making hosting mainstream: Focused on making hosting just as popular as traveling on
Airbnb. In Q4, their Host community surpassed 5 million Hosts around the globe, and
active listings increased by 18% year-over-year with sustained double-digit supply growth
across all regions. In 2023 alone, Hosts earned more than $57 billion, and in 2024, they
want to continue raising awareness around hosting and improving the overall host
experience
2. Perfecting the core service: Over the past three years, they’ve launched more than 430 new
features and upgrades to their core service. They’ve made significant improvements to
make Airbnb a more affordable and reliable option. For example, host cancellations
decreased by 36% in Q4 2023 compared to the same period in 2022, and two-thirds of
their Hosts now offer weekly or monthly discounts.
3. Expanding beyond the core: Airbnb is at an inflection point. They spent the past three
years perfecting their core service, and now they have a reach cap on how much they can
grow organically through simple user increases. Following the success they’ve seen in
recent quarters, they believe that now is the time for them to expand beyond their core
business and reinvent Airbnb. This is exactly what is needed, but of course, with no
concrete plan, there is a risk of them not knowing how to do so.
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8.1 Operational Risks
Service Fee Rate Hike:
Airbnb announced that they will be increasing their fees by 2%, going from 14.8% to
16.8% in total fees. The anticipated 2% fee hike could lead to a notable increase in
Airbnb's total revenues in short-term, specifically, it this change is forecasted to uplift
revenue by 200 to 500 million dollars, indicating a significant opportunity for revenue
growth and the company's top-line figures.
We believe there will be growth in the short run, because they are implementing this
rate hike right before the 2024 summer (it begins on April 1st, 2024), we believe there
will be immediate effect on many current users who planned to use Airbnb this summer
and would find it hard to find another alternative on the short run. For this reason, the
2% rate hike will probably provide positive results this summer season.
However, in the long run, we believe that the 2% hike will make the overall fee rate so
high that hosts and users may find it too expensive to use Airbnb, pushing them away
to begin using hotels instead. This is quite a big risk that Airbnb are taking, however it
can be easily fixed by decreasing the rates again if the executive team begins to see a
negative effect in overall user and host reaction.
Regulatory Issues:
Airbnb has encountered continued regulatory pressures in different markets. These
regulatory challenges stem from concerns related to zoning laws, rental regulations,
tax compliance, and community impact. Such pressures have led to increased scrutiny
and restrictions on Airbnb's operations in certain jurisdictions. In specific regions like
Mexico, Airbnb listings led to rent price increases in entire areas, which made the
Mexican government create regulations on short-term rental agreements, leading
Airbnb to reduce their entire Mexico expansion.
Additionally, in the USA the number of US municipalities introducing short-term rentals
regulations by the end of the year are the highest its been for the past 5 years. This of
course will impact Airbnb’s performance, especially since the US is currently their
largest revenue stream.
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9.1 Valuation: DCF
For our discounted cash flow analysis of Airbnb, we took multiple factors into consideration
when forecasting the future cash flows of the corporation. Specifically, we took into
consideration the impact of the lack of international growth, the risk and opportunity in
pushing past their current core services, the impact a 2% rate increase will have on Airbnb’s
performance from 2023 to 2028, and the risk factor that the current geopolitical tensions are
creating world-wide in both the lodging and tourism industries.
Figure 1 showcases our assumptions and WACC calculations. For this DCF model, we assumed
a regular 20.62% tax rate and placed a general discount rate of 8% due to our forecasting
Airbnb’s performance for the next 5 years. We utilized an average perpetual growth rate of 3%
and the EV/EBITDA multiple to try to find the closest valuation of Airbnb as a brand and entity.
And for the WACC, we used the basic assumptions and calculations to get the WACC rate for
our forecasts.
Figure 1: Assumptions & WACC Calculations
In regards to projected revenue, we divided out total revenue into growth by geographical
segment. Overall, we believe that Airbnb as a corporation will probably perform poorly for the
next 1.5 years due to a lack of international growth, increased rates, and geopolitical tension.
This is reflected in our revenue model, and each segment was changed depending on the size
of the effect we believe such risks could have.
We believe that around 2025, Airbnb will begin to regain its growth as a company after they
have managed to push through the risks and begin the development of the ‘new’ Airbnb. As
shown in Figure 2, the segments with the slowest growth rates would be North America and
Europe, and the fastest-growing markets would be Latin America and Asia Pacific.
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9.2 Valuation: DCF
Figure 2: Projected Revenue Per Geographical Segment
We discounted the future cash flows as shown in Figure 3 and used all our numbers to find the
enterprise value and equity value per share of the company. We forecasted the enterprise
value to be $123 billion dollars, which results in an equity per share value of around $193.69
dollars per share.
Figure 3: Discounted Cash Flow Model, Market Value, and Equity Value Per Share
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10.1 Report Summary
Airbnb currently stands as a prominent player in the lodging and hospitality industry,
offering several positive aspects that make it an attractive investment opportunity. One
key strength of Airbnb is its innovative business model, which has disrupted the traditional
hospitality sector by allowing hosts to rent out their homes or apartments to travelers. This
model not only provides a unique and personalized accommodation experience for guests
but also enables hosts to monetize their unused or underutilized spaces, promoting
resource efficiency and economic opportunities for individuals and communities.
Moreover, Airbnb's platform offers a diverse and extensive inventory of listings, ranging
from traditional homes and apartments to unconventional accommodations like treehouses
and yurts. This wide range of options caters to the preferences of a broad spectrum of
travelers, enhancing Airbnb's appeal and competitiveness in the market. The flexibility and
variety offered by Airbnb resonate particularly well with younger demographics and
travelers seeking authentic experiences and local immersion, positioning the company as a
preferred choice for leisure travel.
In addition to its innovative business model and diverse inventory, Airbnb has established
a strong brand recognition and reputation as a trusted platform for home-sharing and
vacation rentals. This brand identity has helped Airbnb attract a large and loyal user base,
differentiating it from competitors and fostering trust and confidence among users. The
user-friendly nature of Airbnb's platform, with features such as reviews and ratings, further
enhances the overall user experience and contributes to the company's positive image in
the industry.
Furthermore, Airbnb's financial performance reflects consistent and profitable growth, as
evidenced by metrics such as revenue, nights and experiences booked, and gross booking
value. The company's ability to attract and retain customers across various regions,
particularly in Europe, Latin America, and Asia, underscores its global appeal and market
penetration. This sustained growth in key performance indicators demonstrates Airbnb's
operational efficiency, revenue generation capabilities, and resilience in the face of market
challenges.
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Investment Position:
In conclusion, Airbnb is a very interesting long-term investment with strong growth potential.
We believe that the 2% increase in rate hikes, the slowdown in expansion, and the uncertainty
behind how Airbnb will grow will result in a slowdown in their operations for the next one to
two years. However, with the current management in place, we have confidence in their ability
to find ways to break though there challenges and grow Airbnb past their current core services.
We have found the intrinsic value of the corporation to be $193.68 per share, valuing the entire
corporation at around $123 billion dollars, which is a real increase of 20% in enterprise value,
making Airbnb currently undervalued and a potential good long-term investment.
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