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Why I Bought Shares of a Company Decimated by COVID-19

By Brian Stoffel - May 27, 2021 at 10:22AM

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If you look at the investment in this light, you'll see an enormous opportunity.

Lots of stocks, especially those with some connection to cloud computing, thrived during the COVID-19 pandemic and some did well because of it. Ten years' worth of migration to digital services had to effectively be squeezed into 10 months if some of these businesses wanted to survive. That horrible and distressing situation for many actually helped several of the stocks I own have a banner 2020.

But my latest stock purchase would have been an outlier with much of my portfolio last year. Consider what happened in 2020 for this technology company:

  • Revenue fell 30%.
  • The amount of business done on the company's platform fell over 35%.
  • Free cash flow swung from over $500 million in 2018 to a loss of over $650 million.

And yet, despite these disappointing metrics, I recently put over 3% of my family's real-life holdings into Airbnb (ABNB 2.33%). Read below to see why I consider it worthy of your consideration, too.

a woman enters a hotel room with suitcases and wearing a protective mask to guard against covid-19

Image source: Getty Images.

Could Airbnb have actually gotten stronger?

I'm not going to deny 2020 was a painful year for Airbnb's business. At the same time, however, I have to wonder if this business didn't strangely benefit in an enduring way from the economic effects of the pandemic.

Think about it: Business was down for everyone in the travel industry. But relative to the competition (mainly hotel chains), Airbnb actually gained quite a bit of market share.

My family, for instance, took a trip to Texas in the winter. We stayed in Airbnb accommodations the entire time. There was no way we were going to risk sharing the same air with others in enclosed spaces -- especially when we spent time with my (elderly) parents through the pandemic.

And it wasn't just travelers: Hosts with lost wages and lots of time on their hands were also incentivized to join the platform. Management is tight-lipped about the absolute number of hosts in any given quarter. But the company did say that "active listings in non-urban areas in Q1 2021 increased almost 30% from the same period in 2019."

Attracting both hosts and guests to the platform (Airbnb's website) catalyzes the network effect: The more guests, the more hosts are incentivized to list. The more hosts that list, the more potential guests are incentivized to join.

The very definition of anti-fragility

Long-time readers know that I use the Antifragile Framework for constructing my portfolio. The basic idea is that I want companies that can actually get stronger due to chaos over time. That way, I don't have to read a crystal ball; I can sit back, know that the unexpected will eventually arrive, and trust that the organizations I own will get stronger as a result. 

Let's compare how Airbnb is faring relative to two of the largest travel chains globally: Hilton Worldwide Holdings (HLT 0.77%) and Marriott International (MAR -0.07%). For these comparisons, we'll wash out the effect of 2020 by comparing the first quarter of 2019 to 2021. We'll cover three key metrics:

  • Average daily rate (ADR): This is the amount someone pays per night in a dwelling. There are lots of factors to consider, but a rising ADR generally means a company has pricing power.
  • Gross Booking Volume (GBV): This is the total amount of money that changes hands to rent a dwelling (and, in Airbnb's case, to also book an "experience"). See the footnotes on the graph below for how this was calculated for Hilton and Marriott.
  • Revenue: Simply put, the amount of money each of the companies has collected.
Chart comparing Airbnb to Marriott and Hilton on the three metrics.

Chart by author. Data source: SEC filings. GBV for Marriott and Hilton calculated by multiplying revenue per available room (RevPAR) by 90 days in the quarter, by the number of rooms available at the end of the quarter.

If this chart doesn't speak volumes, I don't know what will. Consider what this means:

  • ADR: While Marriott and Hilton have had to lower prices to attract guests (and were generally forced to abide by any capacity requirements still in effect), Airbnb hosts have actually been easily raising prices.
  • GBV: This isn't an apples-to-apples comparison as Airbnb raises GBV by selling "experiences," but that's kind of the point: It has a more diverse and flexible business model.
  • Revenue: Something has to pay the bills. While Marriott and Hilton won't disappear, Airbnb's ability to maintain revenue means it can spend far more -- proportionally -- to lock in its new customers for the long haul.

Short-term catalyst, long-tail results

Here's the key asymmetry: COVID-19 was a rare event that sent more people to Airbnb than to the competition. But it's short-lived: Soon, people won't be choosing Airbnb because they're scared of infection. The long-term potential, however, from this short-term catalyst is untapped: Once people try out Airbnb -- as hosts or guests -- they are likely to stay for the long haul.

Consider that last weekend, my family and I rented a small place on a lake in northern Wisconsin. It was actually a garage converted to a one-room unit. During our stay, the owner -- who lives on the property -- invited us on the lake with her family to swim. We shared time, meals, and stories. We didn't pay anything for the added pleasure.

And we've been using Airbnb for a long time. This one instance is nothing new. Hosts are largely individuals spread throughout the globe who enjoy helping people "belong anywhere" (which just so happens to be Airbnb's mission). I don't think entrenched players stand a chance of duplicating that experience, and my money's on the fact that Airbnb will continue to grab market share.

Brian Stoffel owns shares of Airbnb, Inc. The Motley Fool owns shares of and recommends Airbnb, Inc. The Motley Fool recommends Marriott International. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Airbnb, Inc. Stock Quote
Airbnb, Inc.
$121.50 (2.33%) $2.77
Marriott International, Inc. Stock Quote
Marriott International, Inc.
$161.13 (-0.07%) $0.11
Hilton Worldwide Holdings Inc. Stock Quote
Hilton Worldwide Holdings Inc.
$134.69 (0.77%) $1.03

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