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Airbnb Inc.
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== Investment framework == Within Goldman Sachs Investment Research's investment framework, it looks for companies exposed to the strongest growth drivers, high degrees of operating leverage, management focus on disruptive innovation within large underlying industries, and, in a sector that offers few of them, real competitive barriers or sustainable advantages in technology, scale, and/or business model. In particular, Goldman Sachs Investment Research looks for strong network effects, a high ratio of revenue to customer acquisition costs, and strategies to exploit the growth in internet as a whole. Upon determining attractive and sustainable business models, Goldman Sachs Investment Research layers on valuation to determine its best investment ideas. Goldman Sachs Investment Research looks for attractive valuations relative to the growth rates and returns that Goldman Sachs Investment Research believes companies can sustain. Those are the companies that Goldman Sachs Investment Research believes investors will be best served to own, particularly when current growth multiples undervalue those opportunities in its framework. Based on Goldman Sachs Investment Research's growth, leverage, innovation, and competition (GLIC) framework analysis and the stock’s current valuation, it believes Airbnb (ABNB) warrants a Neutral rating. '''Growth''' Pre-pandemic, Airbnb grew at a significantly faster rate than its peers, albeit from a smaller base and recorded smaller declines during 2Q20 which was the worst affected quarter for all travel companies (Exhibit 16 - Exhibit 17). During this period, long-term stays was one of the growth drivers for the company with positive growth y/y every month between May–September amid the work-from-home option followed by people across the globe. With this flexibility likely continuing beyond the current pandemic, Goldman Sachs Investment Research sees further growth opportunities being driven by Airbnb’s long-term stay offering as well as the liquidity it creates for property owners. Additionally, with any recovery in travel, Goldman Sachs Investment Research expects the company to be better positioned for customers seeking unique experiences at competitive rates versus hotels. While Airbnb’s Gross Booking Value was ~30% of the average GBV of Booking.com and Expedia in 2018, Goldman Sachs Investment Research expects this share to go to 60% by FY24 (Exhibit 16). '''Leverage''' The company acquires customers through both paid and direct channels, with 77% of traffic coming unpaid or direct in 2019 vs. 91% unpaid or direct in 9M20. Airbnb’s unique supply (relative to hotel-heavy peers) and strong brand, in Goldman Sachs Investment Research's view, enable the company to better navigate many of the high-cost paid channels (e.g., Google) its online travel peers (Booking Holdings, Expedia, etc.) are more reliant on. In addition, nearly 70% of revenue was generated by repeat guests in 2019 (vs. ~50% in 2015), further driving customer acquisition efficiencies. On other side of its marketplace, existing hosts and direct host relationships drive supply efficiency, too. In 2019, more than 80% of revenue came from existing hosts while ~80% of hosts that joined the platform in 2019 came directly. Goldman Sachs Investment Research believes these factors have enabled the company to gain higher sales & marketing spend efficiencies as compared to its other online travel agents (Exhibit 18). Goldman Sachs Investment Research measures leverage as incremental margin, which is calculated as (2023 adjusted EBITDA – 2019 adjusted EBITDA) / (2023 sales – 2019 sales), using GS estimates. Airbnb ranks 8th in Goldman Sachs Investment Research's coverage group on leverage. '''Innovation''' Enabling people to trust strangers and share/live in their accommodations is a key innovation introduced by the company in the travel space. This has been facilitated by seamless communication between hosts & guests prior to booking, secure global online payments for booking purposes, setting up cleanliness standards, background checks in specific countries and sharing reviews of the place on the platform post-stay. During 2019, 85% of the overall stays had at least one review from the host or a guest. Goldman Sachs Investment Research uses a 50%/50% blend of TTM product development expense and TTM product development expense as a percentage of gross profit to quantify the level of innovation at a company. Airbnb ranks 7th on innovation in Goldman Sachs Investment Research's coverage owing to its high absolute dollar R&D spend and as % of gross profit. '''Competitive advantage''' Goldman Sachs Investment Research measures competitive advantage using a 50%/50% blend of (i) a qualitative (1-4) rank where 4 represents high levels of competitive advantage and (ii) NTM market share for the respective addressable markets. Airbnb ranks 12th in Goldman Sachs Investment Research's coverage in terms of competitive advantage. The company’s competitive moat lies in its differentiated accommodation offerings spanning private rooms, entire houses, luxury villas, treehouses, igloos, cabins, castles boats and a wide variety of experiences, in roughly 100k cities across 220+ countries/regions. Customers choose the platform as they get to live in unique places that may not be accessible otherwise and also get to experience newer markets the way locals do. While the major online travel agents are focusing on growing their alternative accommodation business, search results for apartments on these platforms are often skewed towards smaller, independent hotels. From a supply perspective, hosts’ preference towards Airbnb as compared to traditional online travel agents is more likely to stem from greater customer support availability and lack of channel conflicts at the former. Additionally, Goldman Sachs Investment Research believes Airbnb’s strong brand drives lower customer acquisition costs, greater customer loyalty which could create upside for its growth flywheel over time. '''Financial model''' Goldman Sachs Investment Research believes Airbnb’s growth will be driven mostly by nights/experiences growth (40% CAGR between 2020-23) as the opportunity expands beyond travel to longer-term stays. Goldman Sachs Investment Research expects GBV/booking to decline to $112 by 2024 (vs. Goldman Sachs Investment Research's expectation of $124 in 2020) as the mix-shift impact from booking of entire home listings moderates and pricing trends normalize post-COVID with lower rate regions (e.g., LatAm) increasing within the overall mix. Goldman Sachs Investment Research expects Adj EBITDA profitability beginning in H2 2021 vs. -5.3% (-0.7% of Bookings) in 2019 driven by strong top-line performance alongside scale benefits delivering operating leverage primarily within sales & marketing as well as efficiencies in gross margin. Goldman Sachs Investment Research forecasts adjusted EBITDA margins expanding to 15.3% of revenue (2.1% of Bookings) by 2023 though Goldman Sachs Investment Research anticipates the company will continue to invest in the business to drive growth, putting the company’s longer term target margins of greater than 30% of sales well beyond the window that Goldman Sachs Investment Research forecasts. '''Seasonality'''. Seasonality is reflected in the company’s financial performance with bookings building during 1H before trailing off in 2H, but due to revenue being recognized at check-in, Q3 historically represents the strongest quarter for revenue contribution. Particularly in North America and Europe where the company has significant exposure. Higher unearned fees (from service fees collected at time of bookings) in the first two quarters contributes to higher FCF during this period.
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