Since its founding in 2007, Airbnb (ABNB +2.71%) has quickly become a major disruptor in the global hospitality industry. It reported $73 billion of gross booking value (GBV) and 448 million nights and experiences booked in 2023. The business currently counts 5 million hosts listing 7.7 million different properties. This is tremendous scale that has been achieved in less than two decades.
Thanks to such remarkable success, it's easy for investors to put the blinders on and assume this growth tech stock is invincible. But even a business as dominant as Airbnb faces challenges.
What is the company's biggest risk?
Keep this in mind
Airbnb faces competition from other booking platforms, as well as the major hotel chains. But its most formidable opponent might be the uncertainty surrounding regulations, which plays a part on a local, state, and national level.
The rise of dominant internet-enabled platforms is happening at a faster pace than lawmakers' knowledge and ability to handle the changing industry landscape. Another gig-economy platform enterprise, Uber, must also navigate shifting regulations.
Airbnb has had a notable effect on the dynamics of different real estate markets across the globe. The increase in listed properties might negatively affect neighbors in a specific community who don't like a periodic inflow of new travelers. This could raise safety concerns as well.
Maybe the most important factor that catches the eyes of regulators is Airbnb's effect on a city's cost of living. There's already a problem with housing affordability in the U.S. Now that there's a service that facilitates the ability to generate a form of rental income, it could further financialize markets as properties are purchased not for the buyer to live in, but for them to rent out to others.
NASDAQ: ABNB
Key Data Points
The company says 80% of its 200 top markets have some kind of regulation in place. But this hasn't prevented Airbnb from getting banned in certain major metro areas, most notably in New York City. In September 2023, officials in America's most populated city essentially banned short-term rentals, or stays for less than 30 days.
Unsurprisingly, executives view this as the wrong move. They argue that Airbnb hosts pay their taxes, and that the business can help boost the economy by opening up tourism and increasing spending. Luckily, there is no single city that represents more than 2% of the company's revenue, providing a location buffer.
Should legislation become more strict, though, Airbnb's business would be negatively affected. For example, lawmakers could impose higher taxes, fines, or fees, all of which would hurt the company's sales and profitability. It could also diminish the experience for both hosts and guests.
Still a good business
Investors should keep regulatory risks in mind, as they can alter the trajectory of Airbnb's business. But there are still many reasons to believe this is a good company that might be worthy of your investment dollars.
Despite macro headwinds, the business continues growing at a brisk pace. Revenue was up 18% in 2023, as GBV rose by 16%. Airbnb is fully focused on innovation, as it introduced 430 new product enhancements in the last three years and intends to expand beyond its core service offerings.
At its current scale, the company benefits from powerful network effects. With more hosts and listings, the platform becomes increasingly valuable to travelers. And as more guests turn to Airbnb for their next getaway, hosts have access to a global customer base.
At a price-to-earnings ratio of 18.4, buying the stock today might almost be a no-brainer decision -- that is, if you understand and accept the risk laid out above.
