Airbnb IPO: 3 Hidden Trends That Will Drive Long-Term Growth

In addition to its competitive advantages, the company has a number of macroeconomic tailwinds.

Dec. 9, 2020

This article originally appears on The Motley Fool, written by Sean Williams.

By now, investors have had plenty of time to sink their teeth into the Airbnb (NASDAQ: ABNB) IPO and dig through the company’s financials.

The home-sharing pioneer has stumbled unsurprisingly during the pandemic, with revenue down 32%, and it was even forced to lay off a quarter of its staff earlier this year. However, the scrappy upstart is bouncing back quickly, having returned to domestic growth, and looks to have bright future of it. In the near term, the end of the pandemic will unlock pent-up demand, and the company already has more bookable rooms than any hotel chain.

For those questioning whether Airbnb can truly thrive long-term, let’s take a look beyond the key numbers at some major global trends that will support the company’s growth over the next decade and beyond.

1. The rise of remote work

If there’s one trend born in the pandemic that’s likely to remain beyond the crisis, remote work seems to be it. Millions of white-collar workers were hastily ejected from their offices back in March, when the pandemic first struck, but many prefer to stay that way. Polls show that about half of Americans working from home would prefer to continue working remotely, and most companies have been able to manage the work-from-home shift relatively seamlessly. For companies, there’s a benefit as well, as they can save on office real estate and business travel, and even look to hire employees in parts of the world where they can pay them less.

It’s easy to see how Airbnb would benefit from such as trend. In the not-too-distant future, legions of workers in the digital economy, especially young ones, may choose to log in from a far-flung beach, a ski resort, or whatever trendy destination they choose to visit. Airbnb offers a distinct advantage over hotels here as it allows access to kitchens, offers long-term stays, and has a wide range of prices and options, allowing travelers to easily meet their needs. Airbnb also gives travelers access to places and neighborhoods without conventional hotels.

If remote work is really here to stay, a boom in home-sharing won’t be far behind.

2. Experiences over things

Arguably, the defining trait of millennials is their preference for spending money on experiences over things. For baby boomers, keeping up with the Joneses meant investing in your house or buying a nicer car. For millennials, this spirit manifests itself as FOMO, or fear of missing out, and as posts on Instagram of trips to exotic locales, music festivals, or other chic attractions. According to Eventbrite, 78% of millennials prefer to spend money on desirable experiences over desirable possessions. 

It’s not just millennials jumping on the trend. Psychologists agree that spending money on experiences rather than things is better for your overall happiness and contentment, and businesses focused on experiences rather than stuff had largely thrived before the pandemic. Airbnb itself has also extended its brand to experiences allowing guests to find things like cooking classes, photography, or a local bike tour on their trips.

Travel, of course, is a core component of the experience economy and fits with the remote work, the broader sharing economy, and other trends that are steering consumers around the world away from spending on possessions and toward valuing experiences more.

3. Tourism everywhere

The global tourism economy is huge. According to the United Nations, it employs one of 10 people around the world and is indirectly responsible for the livelihoods of hundreds of millions more. In 2017, tourism contributed direct receipts of $1.6 trillion, or 2% of the global economy, and that figure about doubled over the previous decade. Thanks to trends like the ones above, the tourist economy looks poised to grow at a similar pace over the next decade, and Airbnb and home-sharing are further accelerating it by opening parts of the world that were formerly difficult to visit, expanding accommodations supply, and by giving hosts a valuable new revenue stream.

Meanwhile, travel continues to get cheaper. Real prices for the average airline flight have fallen by about half over the past 40 years since deregulation and the proliferation of budget airlines like Spirit and RyanAircontinues to bring costs down. Innovations on the horizon like self-driving cars are poised to make traveling even cheaper and more accessible, and Airbnb itself has helped bring costs down by enabling discount lodging around the world.

If the tourist economy doubles over the next decade, that means another $1.6 trillion of spending on things like travel and experiences, giving Airbnb an even larger market to penetrate. While it’s true that the company’s revenue growth has slowed substantially, from annual gross booking value growth of 73% in 2016 to 29% in 2019, its competitive advantages, trends like the ones above, and the growth in the greater travel economy should lead to sustainable growth at a strong pace.

For Airbnb, that means there’s plenty of upside potential in the stock even as the company has already disrupted the hotel industry.

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