Airbnb (ABNB 0.75%) was devastated at the pandemic's onset through no fault of its own. Fearing exposure to a potentially deadly virus, people hesitated to take vacations away from home. Travel demand crashed, and Airbnb was not spared in the slowdown.
Fortunately, the world has made considerable progress in its battle against COIVD-19. Effective vaccines, treatments, and built-up immunity from previous infections are lowering the numbers of people becoming severely ill from the coronavirus. That's giving folks the confidence to take long-delayed vacations, and travel demand is soaring. Here's how Airbnb is preparing to serve that increased appetite.
Image source: Getty Images.
Attracting hosts is key to Airbnb's recovery plan
Airbnb does not own the listings posted on its platform. Rather, the website and app allow individuals (hosts) to list a place to stay. "Place to stay" is a broad definition. Hosts have listed treehouses, spare bedrooms, garages, and more. If there is room for a bed or even a sleeping bag, it has probably been listed on Airbnb.
Because Airbnb does not need to build a new property to respond to increased demand, the company is more adaptable than traditional hotels and resorts. This business model can partly explain why its revenue could recover from decreases in 2020 quickly.
ABNB revenue (annual). Data by YCharts.
In response to growing demand, Airbnb needs to encourage existing hosts to list more places to stay and attract new hosts to the platform. That is precisely what management is focusing on doing. The company already lists more than four million hosts and has implemented some changes to help attract even more.
One of the main friction points among prospective hosts is the potential damage to their properties caused by guests. To alleviate that concern, management offers a $1 million protection plan that covers property damage and is provided free to hosts.
Airbnb also introduced an easier sign-up process to become a host. Folks can now list their properties in 10 easy steps. People appreciate the convenience; the easier the process becomes, the more likely it will attract sign-ups.
The company has also conducted its first large-scale advertising campaign, focused on getting the word out about hosting. According to management, it's working -- with an increase in traffic from the countries where it ran the campaign, significantly ahead of the countries where it didn't advertise.
The potential increase in travel spending could be massive
Worldwide spending on hotels and resorts decreased to $610 billion in 2020, down from $1.47 trillion in 2019, before the outbreak. In 2021, the industry rebounded, but not wholly, to $950 billion. That means the market still has roughly $500 billion in spending until it recovers to pre-pandemic levels, and that's not accounting for pent-up demand.
ABNB price to free cash flow. Data by YCharts.
It's no surprise that Airbnb is working so hard to attract hosts. The rebound in travel spending could be epic, and it wants to take a meaningful share of that increase. The stock is not expensive, either. If investors want to ride along with Airbnb and benefit from the rebound in travel, it's an excellent time to buy the stock.
