Airbnb (Nasdaq: ABNB) shares have swung up and down since its Dec. 10 IPO, but after its recovery over the last few days, the stock is back on top of the online travel world.
Trading at a market cap of almost $100 billion as of Monday's close, Airbnb has eclipsed Booking Holdings (Nasdaq: BKNG), its closest rival, in market value as Booking is worth about $84 billion. Some investors have been skeptical that Airbnb deserves a greater price tag than Booking since the parent of Priceline, Kayak, and Booking.com is still much bigger than Airbnb and solidly profitable.
In 2019, Airbnb generated $38 billion in gross booking value compared to $96.4 billion in gross bookings at Booking Holdings. Booking also reported nearly $5 billion in net income that year on a generally accepted accounting principles (GAAP) basis compared to a loss of $674 million at Airbnb.
Nonetheless, there are a number of reasons why Airbnb deserves to be the more valuable company.
1. Airbnb has the competitive advantages
Booking was a pioneer in online travel in the early internet days. The company built a highly profitable business model by signing up independent hotels to list on its website and taking commission on bookings. In Europe, especially, that business and the Booking nameplate drove the company's strong performance and a reordering of the rules in the hotel industry .
However, today, Airbnb is the disruptor, and the home-sharing model it created has been highly popular and difficult to copy. For instance, Airbnb has more listings available on its platform than the top-five hotel operators combined.
Booking and other online travel agencies (OTAs) like Expedia and Trivago have followed Airbnb into home rentals, but they don't offer the same experience. According to research from ValueChampion, the "alternative accommodations" on Booking's platform, of which the company now boasts more than 5 million, are mostly professionally run apartment rentals rather than Airbnb's home rentals, which are hosted by the actual home dweller. That makes a significant difference in the Airbnb brand as guests use Airbnb because they want to stay in a unique neighborhood or get recommendations from locals they meet. In addition to its other advantages over traditional hotels, Airbnb provides a more authentic experience than a professional vacation rental.
Though Airbnb has home-sharing competitors, like Expedia-owned VRBO, the majority of its hosts list only on Airbnb, giving it an important competitive advantage against peers like Booking and VRBO.
2. Airbnb is growing much faster
Home-sharing is a relatively new way to travel enabled by mobile technology and has gone from a virtual unknown a decade ago to a global phenomenon. Though Airbnb's growth rate has slowed down from its earlier breakneck speed when it was a novel concept, the company was still growing briskly before the pandemic. In 2019, gross booking value rose 29%, and revenue jumped 32% to $4.8 billion.
By contrast, Booking's revenue grew just 4% in 2019 to $15 billion, a sign its business has now matured. In recent years, online travel agencies like Booking have faced increasing competition from Google, a key advertising partner that has spotted an opportunity in letting search users book hotels and flight directly rather than going through Booking or its peers. Additionally, after two decades of growth and disrupting traditional travel agencies, the market for online bookings seems to have matured.
Airbnb has also surpassed Booking in another key metric, as ValueChampion points out. In the last year, Airbnb has gotten more Google searches than Booking.com, the OTA's primary banner. That shows it has fast narrowed the customer-awareness gap and has even topped Booking in at least one important category.
3. Airbnb will emerge from the pandemic faster
Airbnb's flexibility as a home-sharing platform also gives it another asset that Booking lacks, and that difference has been on display during the pandemic. Because Airbnb's model isn't dependent on fixed properties, the way traditional hotels are, it can respond to shifts in demand like the one the pandemic has caused. Instead of booking international trips or urban destinations, people around the world are using Airbnb to get out of cities to more rural areas, in homes that have more space and areas that allow for social distancing.
Domestic travel, which the company defines as travel within the same country, returned to growth in June, and the company has also seen solid growth in short-distance travel and long-term bookings, all of which are a reflection of changing demand from the pandemic. While overall bookings are still down year over year, Airbnb is in a much better position than Booking is. In the third quarter, Airbnb's revenue fell 18%, while Booking experienced a 48% drop in its revenue for the same period.
Airbnb is likely to recover more quickly as people are eager to travel but wary of the coronavirus. They would rather stay in a much safer home-share than in a hotel where they'll be exposed to other travelers. Additionally, travel to cities and business travel, likely to be the last part of the business to recover, also favor Airbnb over traditional online travel agencies. Business travel may have been disrupted permanently by video-conferencing apps like Zoom, and this disruption could present a further challenge to Booking and its peers.
On the other hand, Airbnb stands to benefit from the remote-work trend as digital workers will be able to travel anywhere in the world with an internet connection, using Airbnb to bounce around from home to home as they wish. That's just one of many trends that should give the home-sharing company solid tailwinds over the coming years, helping it sprint past competitors like Booking.