Here’s what you can expect from the home-sharing giant in the coming years.
This article originally appears on The Motley Fool, written by Jeremy Bowman.
In a little more than a decade, Airbnb (NASDAQ:ABNB) has transformed the travel industry.
When it once would have been unthinkable for most travelers to stay in the home of a stranger, it’s now the norm for many. Thanks to its network of more than 5 million hosts, Airbnb has more rooms available than the five biggest hotel chains combined and it offers a much wider range of locations, styles, and price points than a hotel chain can.
Like the rest of the travel industry, Airbnb has been challenged by the pandemic, laying off about a quarter of its employees last May, but the home-sharing platform has fared better than most of its peers thanks to the flexibility of its model. As travel demand shifted to nearby destinations outside of cities, Airbnb hosts were there to meet those travelers, giving the company a clear advantage over hotels.
It’s difficult to predict where a disruptive company like Airbnb will be in five years and it’s a folly to try to forecast its numbers, especially as the company still faces uncertainty coming out of the pandemic. However, two significant trends should shape Airbnb’s business over the next five years.
The rise of remote work
In its recent shareholder letter, management said, “Guests aren’t just traveling on Airbnb, they are living on Airbnb.” In the first quarter, 24% of nights booked were for stays of 28 nights or longer. While that’s a function of the pandemic, it’s also a sign of what’s likely to be a lasting trend. Remote work has become popular during the pandemic, and a hybrid model seems likely to persist even when offices reopen. Management added, “An increasing number of guests are discovering that they do not need to be tethered to one location to live and work.”
No one knows what the future of remote work will be like. But even Zoom, as big of an indicator of remote work as any, has forecasted revenue growth of 42% this year as it laps the worst of the pandemic, a sign that the remote work trend is here to stay.
Some white-collar workers may be able to remain fully remote, but even those who return to the office are going to more easily be able to work remotely for a long weekend or more extended travel if they wish.
The remote work trend is a significant tailwind for Airbnb as it once again demonstrates an advantage it has over hotels. By offering complete homes with kitchens and workspaces, it can accommodate remote workers in a way that hotels can’t. Similarly, it demonstrates one of the best use cases for the platform for both hosts and guests.
Over the last four quarters, even with the challenges from the pandemic, Airbnb has posted a profit in both adjusted EBITDA and free cash flow. During that time, Airbnb reported $24 million in adjusted EBITDA and free cash flow of $405 million.
The company posted a wide loss in 2019 as it scaled up its business and invested in new products and marketing. But it was solidly profitable as recently as 2018 when it finished the year with $170.6 million in adjusted EBITDA on $2.6 billion in revenue.
The company’s marketplace model also tends to be highly profitable at scale as Airbnb makes money taking commissions on bookings. It only needs to keep its platform up and running and make sure its users are satisfied. It doesn’t have to deal with real estate or cleaning the way most hotels do.
Therefore, as the business scales, profitability should ramp up, especially after the cost savings from the layoffs it did last year. Etsy offers a useful analog here. The artisan-based e-commerce marketplace has seen its EBITDA margins increase as revenue growth surged during the pandemic. In its most recent quarter, Etsy reported an adjusted EBITDA margin of 33%, up from single digits just a few years earlier.
Airbnb could experience a similar breakout as its model has many of the same qualities as Etsy. If the company’s revenue grows at a compound annual rate of 25% over the next five years, it would triple to about $15 billion, and with an adjusted EBITDA margin of 25%, it would have nearly $4 billion in profit according to that metric.
With its current market cap around $80 billion, that may make Airbnb look expensive, but this company has a long growth path ahead as it disrupts the travel industry and rides emerging trends like remote work.
The company’s competitive advantages are abundant and thanks to its strong brand, it will continue to be the leader in the fast-growing home-sharing industry.
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Jeremy Bowman owns shares of Airbnb, Inc., Etsy, and Zoom Video Communications. The Motley Fool owns shares of and recommends Airbnb, Inc., Etsy, and Zoom Video Communications. The Motley Fool has a disclosure policy.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.