Airbnb is not Uber and that's great news for Airbnb

Airbnb, the house-sharing tech company, wants to go public in December under the ticker symbol ABNB. In this article, I look into the company's business model and why I'm psyched that it's finally coming to Robinhood.

Airbnb can be compared to Uber. Both make more efficient use of assets that otherwise might sit idle (spare rooms, cars on driveways) but their financial performance is staggeringly different. In its most recent financial year Airbnb had an operating loss of $500M on revenues of $4.8B, roughly a -10% margin. Uber's most recent annual results? A -60% operating margin. Both Uber and Airbnb have built something that's truly unique in logistics and lodging respectively. Both created an entirely new sort of supply that didn't exist before. Both took trust - a core differentiator of the incumbents (hotels and taxis) in their verticals and digitized it. And, most importantly, the resulting commoditization happened only on their platforms and were captured exclusively by them. Both did so well that their brands were elevated to verbs. So just as “Google” is not only a noun to identify the company and the Google search engine but also a verb that means to search the internet, Uber and Airbnb became synonymous with commuting and lodging. So why are Uber's and Airbnb's financial performances so different?

Simple. Uber hit the self-destruct button multiple times and damaged its brand. Remember #deleteuber? Not many company-bashing hashtags go viral but Uber's did and it became a social media sensation in 2017. The company became known for a toxic, fraternity-like atmosphere that devalued women and tolerated sexual harassment. This self-inflicted damage helped to promote other ride hailing apps and made Uber an easy target for everything that's not right. Over time, competitive, operating, and governance problems popped up like a game of whack-a-mole. 

Airbnb has managed to avoid Uber's missteps. Airbnb became an example of a company that started small with a good idea, grew rapidly, became disruptive, and grew into a monolith. And unlike Uber's, along the way, Airbnb's management and founders didn't lose sight of how they wanted to do business from a cultural and ethical standpoint.

Unlike online travel booking agents, Airbnb is not dependent on, and most importantly, not susceptible to Google. In its IPO S-1 filing, Airbnb disclosed that 91% of all traffic to Airbnb came organically through direct or unpaid channels. This speaks to Airbnb's brand power and proves that its supply is unique & captured exclusively by Airbnb. Google has been extracting an ever greater share of margins from online travel booking agents. Bottom line: it won't be able to do the same with Airbnb. Airbnb is immune to Google's whims and not dependent on Google search ads.  

Hasn't Covid killed Airbnb?

After the first pandemic wave, the future of Airbnb looked bleak. Airbnb's valuation plunged to $18B as it took out high-interest loans to cover guest refunds and $250M for hosts' losses. Then in May, the company laid off about a quarter of its workforce as revenue dropped 72% in Q2. Since then, Airbnb has mounted a furious comeback, mostly thanks to "work from anywhere" and an unexpected number of people renting properties in rural areas in the U.S. It filed for an IPO, is expected to notch a $30B valuation and even turned a profit last quarter on $1.3B in revenue.

Airbnb has warned that the recent COVID surge could bruise bookings this quarter. From the financials of Uber and Airbnb, I bet the damage will be much larger for Uber.  Airbnb is a better business and unlike Uber it that doesn't need to beat every single competitor in order to be sustainable. Airbnb doesn't have a share price to watch — yet — but if it did you can be pretty sure that it would have jumped up on the triple dose of vaccine news we've had in the last two week or so. Things are looking great for Airbnb.

Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.