Online vacation rental hub Airbnb (NASDAQ: ABNB) seems like an unlikely candidate for pandemic success, but its business has shown resilience and growth over the past few turbulent years. Amid COVID-19's infections, cancellations, border closures, and quarantines, and the hassles they've imposed on the travel that Airbnb depends on, the company's ability to even keep pace with the crowd might be a better sign of its strength than you'd think. Here's what you should know as we head into Airbnb's Q4 earnings on Feb. 15.
No. 1 in diversity and reach
The company is both a market disruptor and market leader, with more rooms listed than the top five international hotel chains combined. Airbnb also has an extremely strong brand image. In 2016, YouGov BrandIndex ratings found that Airbnb customers are the strongest advocates of any brand, beating out several other travel brands in the top 10. Word-of-mouth recommendations are one of the most effective forms of advertising, so the dedication Airbnb users have in recommending the service to others is a serious asset.
In 2021, Airbnb launched its largest ad campaign in approximately five years, a sign that the company is committed to performing through the pandemic instead of going with the flow. "Made Possible By Hosts," which was expected to reach 300 million people, was successful in raising Airbnb's YouGov Ad Awareness level to an all time high. YouGov's Ad Awareness metrics, which measure the exposure consumers have to advertisements, have tracked Airbnb since 2014; awareness initially fell during the pandemic, but recovered and surpassed previous levels thanks to the campaign. Airbnb was able to cut its total marketing budget by 45% as it shifted toward marketing its overall brand in the first three months of 2021, while reducing its spending on marketing designed to get users to book rooms or take other specific actions.
Image source: Getty Images.
The threat of regulation looms
Travel will eventually return to normal, helping Airbnb benefit from pent-up demand. The recovery, according to the company, has already started: In its most recent earnings, Airbnb had its strongest quarter ever, with revenue, net income, adjusted EBITDA, and host earnings at record levels. But Airbnb is looking beyond a standard rebound. As the company said in its last shareholder letter:
"The world is undergoing a revolution in how we live and work. Technologies like Zoom make it possible to work from home. Airbnb makes it possible to work from any home. This newfound flexibility is bringing about a revolution in how we travel. Millions of people can now take more frequent trips, take longer trips, travel to more locations, and even live anywhere on Airbnb."
While Airbnb has grown, so has its attention from regulators. Efforts from taxi lobbies made Uber (UBER 1.65%) illegal or unlawful in various places around the world, and Airbnb faces the same threat from regulation. In New York City, one of the world's hottest tourism destinations with some of the world's highest hotel costs, most short-term rentals -- rentals under 30 days -- are illegal. Other destinations have imposed restrictions such as only allowing properties to be rented a certain amount of time, removing listings from the service, limiting Airbnbs in certain neighborhoods, and requiring licensing.
Additionally, Airbnb has drawn criticism for its role in increasing housing prices: "Evidence suggests that the presence of Airbnb raises local housing costs. The largest and best-documented potential cost of Airbnb expansion is the reduced supply of housing as properties shift from serving local residents to serving Airbnb travelers, which hurts local residents by raising housing costs," the Economic Policy Institute said.
Airbnb is also competing with the stocks of other more established lodging websites, such as Booking.com (BKNG 2.44%), and more indirectly with stocks of non-lodging travel websites like Tripadvisor (TRIP +1.82%) that still present an opportunity to buy into the travel segment's recovery. Since its IPO at the end of 2020, Airbnb stock has grown roughly in line with the rest of the market, but that growth has been volatile. After its strong performance last quarter, the company has a lot to live up to for its upcoming results.
