Airbnb (ABNB 0.91%) has been teasing followers for a while about some big news coming to change the company fundamentally. The announcement is out, and it's not as earth-shattering as one might have thought. The market bought into it, though, and Airbnb stock jumped on the news.
Let's see what's happening and why the market is excited.
Slowing demand, changing behaviors
The name Airbnb has become synonymous with vacation rentals. Although this industry has existed for a long time, Airbnb was the first complete online solution for finding travel accommodations, often in places not served by other methods.
Airbnb accommodations have many advantages over hotels. They're often cheaper, there's a wide assortment of options in one platform, and they're often available even where there are no hotels.
Management noted on the most recent earnings call that Airbnb is a flexible platform that can easily respond to changing consumer behavior. When it started, Airbnb serviced tech professionals looking for cheap bed-and-breakfasts as an alternative to expensive hotels, and when there were lockdowns, people who wanted to vacation used it to find accommodations close to home.
Image source: Airbnb.
It's going through another shift right now. Management noted that international travelers are trending away from U.S. locations, but that they account for only about 2% to 3% of the total business. Most U.S. business is domestic, and international travelers are still using Airbnb's platform, just for different locations.
That said, demand is still expected to slow in the second quarter. Nights booked are projected to moderate, mostly due to softer demand in the U.S., where there's economic uncertainty. Management is confident, though, that this is another short-term shift, and that the company has many other growth drivers. It's particularly excited about the opportunity in international, where many large cities are still a small portion of the total business.
Perfecting the core
Management has wanted to expand the platform for a long time, but it's been focused on perfecting the core business before branching out. It feels confident in that respect now for several reasons. The first is price. The platform has more details about its prices at booking, and Airbnb has removed 450,000 lower-quality listings so travelers get better values.
It's also made many improvements to the platform over the past few years, featuring summer and winter releases that make the platform easier to use for both hosts and guests.
"We spent the last few years rolling out hundreds of upgrades to make Airbnb better for guests and hosts," CEO Brian Chesky said. "It's now easier to use, more affordable and more reliable."
New booking options on the platform
Now that management believes the core is intact, it's ready to move forward. Airbnb finally released its long-awaited news last week, and it thinks that the new launch can supercharge the company's potential. Management estimates that for every person who books on Airbnb, nine people book a hotel. If it can get one more of those nine to switch to Airbnb, it can double its business.
So what's this new release? Airbnb now has services and experiences listed as main booking options on its homepage. This isn't completely new; it's been offering these extras for a long time. But they're now included as a core part of the platform.
Honestly, I was underwhelmed by this not-so-major shift. Management thinks that by offering a more holistic experience, it can create a full travel experience for guests that they won't find other places. They'd have to either deal with a tour manager, which is much more expensive, or spend a lot of time putting together an itinerary using many different platforms. This is an all-in-one for cheaper.
This shift has a very upscale feeling. How many guests will want to book a Michelin-starred chef or spend an afternoon with NFL quarterback Patrick Mahomes? Then again, if Airbnb captures this lucrative business, it could be a strong growth driver.
The market had a positive reaction to the release, especially in comparison to the stock's decline after the first-quarter report a week earlier. The stock is still off its year-to-date high, however, so it was a tempered reaction.
A long growth runway
As you might have guessed, I have my reservations about whether this is a real change or just a way to capture attention. However, I do think Airbnb has tons of future potential as it expands internationally, tries to market itself to new populations, and, most importantly, improves its platform for users. The market is there, and Airbnb is doing an impressive job gaining share without theatrics. It could be a contender for a long-term stock to own for patient investors.
