Summary
Airbnb is a company in the process of building its leading alternative accommodations booking service into a platform that enables vacationers, property owners, experience providers and, importantly, a mobile workforce through a marketplace of services that create an unprecedented degree of fungibility in housing. Beyond simply providing an alternative to hotels for a vacationing family, Airbnb allows a property owner in one city to generate revenue to secure housing in another city. To the extent that a more mobile workforce will be a major feature of post-pandemic society, Airbnb will be a critical part of the ecosystem that enables it. Goldman Sachs sees this, and the platform optionality it creates, along with opportunities in travel and experiences, as one of the most significant early-stage growth propositions in the Internet sector.
While near-term pandemic related headwinds are likely to continue to weigh on financial performance, Airbnb’s share gains relative to others in the online travel space and the lodging space in general (Exhibit 16 - Exhibit 17) reflect the strength of its brand, with ~90% of traffic coming directly to the site, and the value of the marketplace model’s flexibility. With management having significantly reduced costs in the early days of the pandemic, aligning the cost structure around the core alternative accommodations business, the economics of the model at scale are among the most favourable that Goldman Sachs sees in the online travel space. That said, at ~17x ‘22 GSe Sales with a 3yr CAGR of 33% versus comps at 5x on 27% growth Goldman Sachs believes much of this outlook is priced into shares of ABNB already and will look for better entry points.
PM Summary
Airbnb is a company in the process of building its leading alternative accommodations booking service into a platform that enables vacationers, property owners, experience providers and, importantly, a mobile workforce through a marketplace of services that create an unprecedented degree of fungibility in housing. Beyond simply providing an alternative to hotels for a vacationing family, Airbnb allows a property owner in one city to generate revenue to secure housing in another city. To the extent that a more mobile workforce will be a major feature of post-pandemic society, Airbnb will be a critical part of the ecosystem that enables it. We see this, and the platform optionality it creates, along with opportunities in travel and experiences, as one of the most significant early-stage growth propositions in the Internet sector.
While near-term pandemic related headwinds are likely to continue to weigh on financial performance, Airbnb’s share gains relative to others in the online travel space and the lodging space in general (Exhibit 16 - Exhibit 17) reflect the strength of its brand, with ~90% of traffic coming directly to the site, and the value of the marketplace model’s flexibility. With management having significantly reduced costs in the early days of the pandemic, aligning the cost structure around the core alternative accommodations business, the economics of the model at scale are among the most favorable that we see in the online travel space. That said, at ~17x ‘22 GSe Sales with a 3yr CAGR of 33% versus comps at 5x on 27% growth we believe much of this outlook is priced into shares of ABNB already and will look for better entry points.
Key investment questions and topics
What’s the addressable market for Airbnb?
There are several components to the market that Airbnb addresses: lodging, experiences, short and long-term housing, host and traveler services, all of which are evolving and in some cases challenging to define. Prior to the pandemic, we estimate the addressable market for travel bookings was nearly $1.5tn annually with lodging making up ~40% of that total. The company sees the addressable market for experiences as $300bn, but growing to $1.4tn over the next 10+ years. While the size of the opportunity created by a more mobile workforce and the fungibility of real estate that Airbnb offers is difficult to quantify at this point, we believe its size could come to outweigh Airbnb’s current core opportunity over time. Regardless, with ~$23bn in bookings in 2020, we believe Airbnb’s current penetration into its addressable market is at most low single-digit percentage points.
What is the impact of the COVID pandemic and expected recovery?
While at its peak the pandemic drove booking declines of +90% among traditional the online travel agents, Airbnb saw bookings decline “only” 67% in 2Q (Exhibit 11). More importantly, the flexibility of the marketplace model allowed Airbnb to adapt to changes in demand and by 3Q bookings declined only 17% y/y, while the OTAs (Booking, Expedia) still experienced nearly 60% declines on average. This came as Airbnb became not only a place to book alternative accommodations viewed as safer than hotels, but also a place to book housing for months as people left cities for less dense alternatives.
While the resurgence of lockdowns has had a negative impact on the leisure travel component of the business, as travel activity begins to increase we expect that the broader selection of accommodation types and locations offered by Airbnb will continue to drive travelers to the platform. For context, our expected bookings recovery has Airbnb’s 2021 GBV returning to 92% of 2019 levels, compared with ~55% at the OTA’s, as people continue to choose short-distance travels, safer alternatives to hotels, and long-term stays amid the pandemic. Beyond the pandemic, we believe the consumer adoption that Airbnb is seeing currently will lead to ongoing growth and engagement as travelers choose to take advantage of the platform’s broad offerings and a workforce / student population with more flexibility leverages Airbnb to enable that lifestyle.
Can Airbnb expand its take rate?
Though the 3% Airbnb charges hosts on average is considerably lower than the roughly 15% OTA’s charge hotels, Airbnb charges travelers a booking fee (Exhibit 2) that results in a total take rate of ~13%, with a 12.7% bookings margin (net revenue as % of gross booking value) reported in 2019. While we don’t expect Airbnb will look to raise take rates on a standalone basis, we do expect the company will continue to develop value-add services for travelers and hosts that will add to the company’s revenue growth relative to bookings. We expect the company will add at least 100bps to booking margins over the next 3-5 years by offering financing, home upkeep, concierge, and other services.
What are the competitive risks?
As with the rest of the travel space, we see Google as the biggest competitive risk to Airbnb. While we don’t see Google getting into the alternative accommodations space directly, at least not in the near/medium term, its position at the top of the funnel for so many travelers does represent the biggest risk we see to Airbnb’s +90% organic traffic as the company looks to grow both its supply of hosts and travelers. Beyond Google, Expedia’s Vrbo and Booking.com’s supply of alternative accommodations represent some competitive threat, as do other regional competitors and potential new entrants. That said, we believe that the challenged financial position of the OTAs and the traffic challenges they currently face limit their ability to effectively compete.
How much of a risk are regulatory issues?
Major cities around the world have viewed Airbnb as violating local ordinances governing rent control, zoning, public safety, and taxation, among others. The company has negotiated solutions with many of these jurisdictions that in many cases involved taking down large numbers of listed properties, restricting certain types of stays, and collecting/remitting lodging and other taxes. Despite these efforts, Airbnb still has a number of these issues outstanding, though we believe the company will be able to address these in largely the same way. Uniquely, the company is the only US internet company with a significant presence in China. This creates risks both in terms of the company’s ability to operate in the country and in the data that must be communicated.
Valuation & key risks
Our $143 price target (12-month) is based on 16x 2022E EV/Sales, or approximately 3x the OTA average of 5x, in line with Airbnb’s ~3x faster growth rate over the ’19-’24E period, attempting to normalize for the distortion of the pandemic. In addition, our 16x 2022E EV/Sales implies nearly 50x Discounted 2028E EBITDA (Exhibit 23) on a 55% 3yr CAGR (2022-’25E) which is roughly in-line with historical growth-adjusted EBITDA valuation across the Internet sector where EV/EBITDA/growth has trended around 0.8-0.9x. (vs. 0.85x implied for ABNB).
Key risks: (+) User growth, experiences opportunity, stronger travel recovery; (-) Regulation, competition, rising customer acquisition costs, and weaker travel recovery.