With earnings season still in full swing, investors may be encouraged by some positive results. Take Airbnb (ABNB 0.75%)for example. It just reported better-than-expected revenue, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and guidance. This probably helps explain why shares have risen 15% this year (as of Feb. 15).

But the travel stock remains 28% below its peak price. And it trades at a compelling price-to-earnings ratio of 18.9 right now. Before you buy the business, here are three facts you need to know.

1. How Airbnb makes money

Airbnb connects travelers looking for a place to stay with hosts who own properties available to rent out. For providing this tech platform that brings people together in more than 220 countries and regions, the business charges fees to both user groups.

Hosts typically pay 3% of the total stay amount, whereas the average guest service fee is about 14.2%. The guest fee can differ based on several factors. And in some instances, hosts can tack on a cleaning fee as well. For experiences where local hosts lead various activities, Airbnb charges a 20% fee.

Those fees add up. Revenue totaled $9.9 billion in 2023, up 18% from the year before. The company's take rate, which measures revenue as a percentage of gross booking value (GBV), was 14.3% in the most recent quarter.

This business model of charging what basically is a toll between users has been incredibly lucrative. Airbnb currently sports a market cap of $100 billion after being founded just about 16 years ago.

2. Finding opportunities to grow

When Airbnb went public in December 2020, the leadership team estimated the company's total addressable market (TAM) to be worth a whopping $3.4 trillion. This gargantuan sum included "$1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for experiences." Of course, as the global population increases, the economy grows, and consumer spending rises, it's reasonable to assume the TAM can expand over time.

Airbnb is available all across the world, but management is focused on expanding in under-penetrated markets such as Switzerland, Belgium, and the Netherlands. The Asia-Pacific and Latin America regions saw the fastest growth last quarter.

Besides geographic progress, the business is seeing differences in certain categories of travel. Cross-border travel is experiencing strong demand, which is not surprising since the worst days of the pandemic are behind us. Perhaps credit goes to the popularity of remote work, but 19% of Airbnb's bookings during the fourth quarter were for 28 days or more.

Executives are ready to push the envelope further in terms of providing more options for users. "We also believe that now is the time for us to expand beyond our core business and reinvent Airbnb," the latest shareholder letter reads. "While this will be a gradual, multiyear journey, we're excited to share more about this later in 2024."

Artificial intelligence will play a greater role in bolstering Airbnb's underlying technology. And I'd suspect there will be a heightened focus on completely new experiences for guests and hosts to interact.

3. Developing an economic moat

To provide context to the scale of this platform, Airbnb has 5 million hosts and 7.7 million active listings. This tremendous supply helped drive 448 million nights and experiences booked and $73 billion in GBV in 2023. The result is the presence of powerful network effects underpinning Airbnb's economic moat. Consequently, it would be an almost impossible task for someone to come and disrupt this company.

It's encouraging to know that management isn't resting on its laurels. They are constantly looking for ways to improve. In just the last three years, Airbnb has released 430 new features to create a better service.

Businesses with network effects can be incredibly lucrative, as Airbnb is proving. Free cash flow came in at a superb $3.8 billion last year, which represented 38% of overall revenue. Thanks to its asset-light nature, capital expenditures are low, helping to boost cash production.

Understanding more about Airbnb can help you make a more informed decision about the stock.