Just How Big Could Airbnb Get?

With a market cap of nearly $110 billion, Airbnb (ABNB 1.03%) is more valuable than worldwide hotel operators Marriott (MAR) and Hilton (HLT 0.34%) combined. But in this Fool Live video clip, recorded on Sept. 27, Fool.com contributors Jon Quast and Matt Frankel, CFP, discuss why Airbnb could still have a long runway for growth ahead of it. 

Jon Quast: Airbnb -- I think that our viewers really know what this company is all about. This is a short-term rental, so maybe instead of staying at a hotel on a vacation, you would book a house or an apartment or a condo in the place that you want to go, but it's not a hotel, it's your own place to stay.

There's more than one company doing this. I like Airbnb because I believe in this whole trend, that people are moving away from the hotels. They like the personal space. They like having the kitchen, having room that your kids can be loud and not have to worry about the person on the other side of the wall in the resort.

I believe in this whole trend, but there are a lot of players in the space. Let me share just one thing that you may not know about Airbnb. This is from a company here. Can you see this? We're on the right page -- Skift, total brand spend? This is a survey from the company Kantar Media. This is January or February of this year. Vrbo, this is Airbnb's top competitor in the space, owned by Expedia (EXPE 2.01%) -- [previously known as] Vacation Rental by Owner. This is how much they spent advertising during the first two months of this year: $90.8 million according to Kantar Media. You scroll down here to Airbnb, less than $9 million that they spent. Vrbo is outspending them 10 to 1 in the space, and yet Airbnb still does more business than Vrbo.

This is really the advantage of Airbnb, and why I think it's such a powerful brand that people really need to focus on, because most of its traffic comes in organically. That is a fact for Airbnb, and this is why it's able to attract so many hosts to its platform. If you are a host, you own a property that you want to have people come and stay as a short-term rental, you have to go where that traffic is. Airbnb is a necessity. Very few people are only listing on Vrbo. Some people are doing both, but really, Airbnb is attracting the properties. You attract the properties, you keep attracting the people is the way I see it.

These are financial results for Expedia. This is total selling and marketing. As you can see here, it is by far their biggest expense that they have [in] the most recent quarter. You go to Airbnb, and now Airbnb has started picking up their spend as well here in recent months. They ran their first big advertising campaign in quite some time called "Made Possible by Hosts," I believe it was called. ... This is not the biggest expense for Airbnb. It is creeping up. They are choosing to spend more on sales and marketing, mostly to get more hosts to the platform because right now they are running at capacity in some places. They have no room for people to continue to book because all the properties are used up, which is why they are actively pursuing more hosts.

But just a way better cost structure that Airbnb gets because of the mindshare that they have with the consumer. Vrbo has to spend for it. Airbnb does not. This is just a chart showing the valuation here. Price to sales, let's just pull that by itself. This is not a cheap stock by any means, but it is as cheap as it has been as a public company, price to free cash flow. The free cash flow is growing as they come out of the struggles from the pandemic. They lost a lot of business when people simply weren't traveling.

Now that people are traveling again, free cash flow is coming back up, the valuation multiple coming back down. I really just wanted to focus on that -- the mindshare that Airbnb has in the consumer, and why I think if you're invested in this space, you really have to be giving Airbnb a serious look.

Matt Frankel: Airbnb has a really big market opportunity. People think it's maxed out already. It's really not. Airbnb I think did a little over $3 billion in revenue last year. Worldwide, spending on short-term stays is about $1.2 trillion. If you include long-term stays, which is, by the way, the fastest-growing part of Airbnb's business, is people staying for 30 days or more, and adjacent opportunities, for example, if I book an Airbnb in Florida, there might sell me a snorkeling trip to go with it. That's something else they're focusing on. If you include all those things, they put their addressable market at $3.4 trillion.

This is a big, big opportunity that might still be in the very early innings. It's a mistake to compare Airbnb's valuation to Marriott or Hilton, because Marriott and Hilton are just X number of properties doing short-term stays. Airbnb's addressable inventory is literally every vacation home in the world, so it's a much bigger market opportunity than a lot of people are thinking.