Lots of bearish investors like to take shots at Airbnb (ABNB 1.10%) over things like high and not-so-transparent fees, resurgent competition from hotels, and a high valuation on the stock. How material some of these complaints are and how much they will really affect the company and the stock is debatable.
But there is one real risk with Airbnb that needs to be called out: the fact that Airbnb is too reliant on the U.S. market. Right now, the business is flying high thanks to all-time-high travel demand by American consumers. And that performance has helped the stock rally over 50% so far in 2023.
But is Airbnb too reliant on a U.S. travel boom? Is the stock in for some headwinds?
NASDAQ: ABNB
Key Data Points
Highlighting a key risk for Airbnb
According to the U.S. Travel Association, U.S.-based travel steadily climbed since the pandemic and now exceeds previous highs set in 2019. In terms of Americans abroad, transatlantic travel (especially to the U.K.) is reaching record highs in 2023 and contributing to high airfare (although signs are emerging that domestic prices are moderating).
This is in sharp contrast to the current business environment, where companies have been slashing spending this year to conserve cash as economic growth stalls out. Inflation from the last couple of years is cooling, but it has nonetheless taken its toll. I worry that the average U.S. consumer hasn't gotten the memo, but soon will. Travel budgets could be in for some moderation in 2024.
For the record, though, consumer habits (as measured by things like the consumer price index and consumer confidence index) historically are a leading indicator of future economic strength -- so there's that. The travel industry could be gearing up for years' worth of overall growth driven by shifting consumer preferences. But the economy hasn't exactly behaved "normally" in the post-pandemic era.
Why does this matter to Airbnb? North American (most of which is U.S.) spending on Airbnb's accommodations marketplace, comprised 49% of overall revenue in the first half of 2023. An additional one-third of revenue came from its Europe, Middle East, and Africa segment, with the U.K. and France being the biggest contributors to that segment.
Airbnb is doing a great job riding the U.S. travel boom, including transatlantic travel, but it's a risk worth noting.
Turning its greatest weakness into a strength?
Airbnb has become a proxy for American and transatlantic travel. This skews a bit from what its peer, online travel booking conglomerate Booking Holdings, is seeing. Booking -- parent of booking.com, Priceline, Agoda, Rentalcars.com, and Kayak -- is getting a strong lift from its larger international business, which only just recovered to 2019 levels for room nights booked.
In Airbnb's defense, as international travel continues to slowly recover, the travel platform is trying to turn its current weakness into a strength. Latin America and the Asia Pacific segments, which collectively account for just 18% of total revenue in the first half of 2023, grew 26% and 42% year over year, respectively, so far this year. That's well above the 19% revenue growth for Airbnb overall.
As CEO Brian Chesky explained on the last earnings call, certain markets have been a key focus for Airbnb's expansion. Business in Brazil has more than doubled, and Germany is up 60% since the start of the pandemic. Chesky said Airbnb will "take that playbook, and we're going to bring it to Asia, and we're starting with Japan and Korea. ... It's a huge opportunity for growth."
So, Airbnb still has lots of international potential for its core business, but the company's reliance on the U.S. market is a potential short-term risk. Things could get bumpy for Airbnb stock if its primary revenue generator slows down in 2024.
Those interested in the stock should plan for volatility. Such is life for premium-priced stocks riding secular growth trends. I continue to rank Airbnb as my favorite travel stock for the ultra-long term despite these possible near-term headwinds.
