Are Short-Term Rental Hosts Really Preparing to Cut Airbnb Out of the Picture?

Airbnb (ABNB 0.24%) is a platform that allows property owners to rent out their spaces to travelers on a short-term basis. And according to one popular newsletter writer, this platform is doomed. 

Edwin Dorsey is the author of The Bear Cave, a newsletter with over 40,000 subscribers that seeks to expose "bad companies." In April, Dorsey highlighted Airbnb, saying that hosts on the platform are increasingly attempting to book travelers directly rather than pay money to Airbnb.

While some may be doing so, I believe Airbnb's business is much safer than Dorsey suggests. Here's why.

What's the potential problem for Airbnb?

If you're planning a trip to Joshua Tree National Park in Southern California, you might consider staying at a property called The Mars and Stars Haus. This property could be booked on Airbnb. Or you may try to save money by booking directly with The Hideaway Haus, the company that owns it.

All told, The Hideaway Haus owns 26 short-term rental properties, as of this writing. These are available on Airbnb and Expedia's VRBO. But guests can also book directly on The Hideaway Haus' website and eliminate the middle party. This is the problem Dorsey is talking about.

Moreover, The Hideaway Haus is by Tony and Sara Robinson, influencers in the vacation-house space. And on their YouTube channel, The Real Estate Robinsons, they encourage viewers to be building a direct-to-consumer business just like they're doing. At the very least, it's a smart business move to protect property owners from a worst-case scenario if Airbnb or VRBO delists their properties.

Can property owners really offer travelers a better price for their stay for booking direct? To answer that, simply consider Airbnb's financial results. It doesn't own vacation properties. But in the first quarter of 2023, it generated $1.8 billion in revenue, had a gross margin of 76%, and earned $117 million in net income. These are fantastic numbers.

In short, Airbnb makes gobs of cash for simply operating the marketplace between the traveler and the property owner. So you betcha hosts can offer cheaper prices when guests book directly. And if travelers book directly, Airbnb's stellar marketplace business disappears. 

Why Airbnb is much safer than assumed

If this were a new potential problem for Airbnb, there'd be greater cause for concern. However, I haven't described anything new here; hosts have always had the option of building their own direct-booking websites. And there's a reason why it hasn't hurt Airbnb's business yet, in my opinion.

When Airbnb had its initial public offering (IPO) in December 2020, third-party data analytics company Transparent Intelligence found that approximately 86% of listings on Airbnb were owned by people with 20 or fewer properties. And among this cohort, approximately 80% listed exclusively on Airbnb.

For property owners with more than 20 properties, like The Hideaway Haus above, exclusivity to Airbnb was less common. The more properties someone owns, the greater the likelihood of listing properties in multiple places.

The reason for this is obvious. A property owner would need to market its own short-term vacation rental to generate traffic to its direct-booking website. If you own 20 or more properties, then perhaps this is a business expense that you can afford. But marketing your vacation property is much harder if you only have one. It makes much more sense to use Airbnb to generate traffic for you.

Moreover, property owners can't use Airbnb for marketing -- it has strict policies about using its platform to encourage travelers to book directly instead. Doing this could get your property removed permanently from Airbnb. And it's a risk small property owners simply can't take. Consider that 90% of Airbnb's traffic comes in organically, according to management. Therefore, Airbnb is a top-of-mind booking platform for travelers, making it a platform that property owners need to make sure they're on.

Finally, direct-booking competition was already a problem for Airbnb years ago and it hasn't hurt the company yet. One could make the argument that it's a growing problem that's closer to reaching an inflection point. However, the numbers for Airbnb itself contradict this idea.

In Q1, there were 121 million nights and experiences booked through Airbnb's platform, a 19% year-over-year increase. With the rise of direct-booking competition, one would expect to eventually see Airbnb's bookings dip. But they're not; they continue to show strong growth at incredible scale.

If this "problem" for Airbnb is real, it's a slowly developing issue, giving the company plenty of time to respond accordingly. It has $10.6 billion in cash, equivalents, short-term investments, and restricted cash. And it's earning over $1 billion in profits annually. In short, if it does come to a fight for survival, Airbnb is well-capitalized.