Airbnb Analysis SEC filing Deep-Dive

by OfficerTruth

ABNB

Airbnb (ABNB) is a hospitality company focused on disrupting the hotel and travel industry with apartment and house rentals with(out) a host. ABNB has grown since its inception in 2007, “We have experienced rapid growth since our founding. In 2019, we generated Gross Booking Value (“GBV”) of $38.0 billion, representing growth of 29% from $29.4 billion in 2018, and revenue of $4.8 billion, representing growth of 32% from $3.7 billion in 2018.”. Now despite taking losses with COVID-19 affecting the two industries they are focused in, they show great prospect with “Experiences”, financial statements from prior fiscal years, and an expansive market when quarantine restrictions loosen.

– ABNB has great growth internationally, allowing them to prosper in other countries when the U.S. may not be doing well economically or otherwise. “As of September 30, 2020, we had over 4 million hosts around the world, with 86% of hosts located outside of the United States.” Having 14% of hosts inside the U.S. allows for a possible increase in the U.S. Market, but also shows ABNB’s resilience with having the majority of hosts international and available when certain countries may experience political issues or economic crises.

ABNB may seem questionable from an American view, but their structure of maintaining security and building trust with guests and hosts is a centerpoint to ABNB’s success. “Our host protections include property damage protection and liability coverage. In addition, our trust and safety initiatives include risk scoring, watchlist and background checks, fraud and scam prevention, secure messaging, secure payments, and minimum age requirements.” ABNB must be able to maintain this trust, which can easily shift with the media and lawsuits they are battling at the moment as mentioned further in their IPO under Risk Factors. The risk that actions taken by the hosts, guests, or a third-party involving crime or vice can undermine the reputation of ABNB should be a reminder that ABNB can be fragile and is built around trust, not results.

ABNB addresses their possible market, saying, “We have a substantial market opportunity in the growing travel market and experience economy. We estimate our serviceable addressable market (“SAM”) today to be $1.5 trillion, including $1.2 trillion for short-term stays and $239 billion for experiences. We estimate our total addressable market (“TAM”) to be $3.4 trillion, including $1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for experiences.” This is a large market for long-term growth that they can capitalize on once a vaccine for COVID-19 is approved and distributed, catalyzing travel and hospitality.

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Acknowledgement of competition is very thorough, noting not only ABNB’s competitors in the travel industry, but the hospitality industry as well. Various competing agencies along with their properties can significantly impact the success of Airbnb, depending on who attracts more guests in the long term.“Online travel agencies (“OTAs”), such as Booking Holdings (including the brands Booking.com, KAYAK, Priceline.com, and Agoda.com); Expedia Group (including the brands Expedia, Vrbo, HomeAway, Hotels.com, Orbitz, and Travelocity); Trip.com Group (including the brands Ctrip.comTrip.com, Qunar, Tongcheng-eLong, and SkyScanner); Meituan Dianping; Fliggy (a subsidiary of Alibaba) Despegar; MakeMyTrip; and other regional OTAs;” The Chinese market is also noted as major competition. Despite the majority of revenue and earnings from EMEA (Europe, Middle East, and Africa), the Chinese market is one that could have positive benefits for ABNB’s reach on the global scale. More competition includes the hospitality sector with “Hotel chains, such as Marriott, Hilton, Accor, Wyndham, InterContinental, OYO, and Huazhu, as well as boutique hotel chains and independent hotels; Chinese short-term rental competitors, such as Tujia, Meituan B&B, and Xiaozhu; and Online platforms offering experiences, such as Viator, GetYourGuide, Klook, Traveloka, and KKDay.” ABNB is battling two different fronts and it can be important to consider their role and presence in both. Hurting the hospitality sector and negatively impact their travel sector as well.

Another significant risk factor noted was natural disasters. Homes that are affected by natural disasters can decrease the supply of hosts available in various countries. This decrease in supply can leave ABNB struggling to retain guests and can negatively affect revenue.

In conjunction with ABNB’s international reach, they noted that their revenues could be negatively affected by foreign exchange rates. “For the year ended December 31, 2019 and the nine months ended September 30, 2020, approximately 60% and 50% of our revenue, respectively, was denominated in currencies other than U.S. dollars. Our results of operations could also be negatively impacted by a strengthening of the U.S. dollar as a large portion of our costs are U.S. dollar-denominated.” The strengthening of the U.S. Dollar can harm their profits and could create financial difficulties in the future.

Supply and Demand are both important when considering a company’s product. Looking at consumer demand, we see an increase even during the pandemic with “Approximately 76% of active listings had been booked in the twelve months ended September 30, 2020 and 90% had been booked in the 24-month period ended September 30, 2020.” ABNB has a growing niche for hosting and we can expect this demand to grow after the pandemic as well as more people begin to travel abroad again and may not consider a public hotel.

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Experiences were briefly mentioned, ABNB hosting experiences including cooking lessons, virtual activities, and virtual animal visits. There is minimal data and research on Experiences’ growth and valuation, but could be seen as a giant gap to purchase another company or grow.

Financial Summary:

Key Takeaways:

We have seen aggressive growth in product development over the past three years and then averaging around $690 million. Sales and marketing have also increased with over $1 billion, increasing their range of guests and hosts. Although we did see a dropoff in this expense, part of the decrease can be accounted for by the effects of COVID-19. Looking at Total Cost and Expenses, the largest sum was in 2019. ABNB’s filing for 2020 Nine Months Ended September 30 shows a decrease in these expenses. This can be because of a decrease in demand so a decrease in spending, but also shows that they are able to handle debt and can cut down on these expenses if necessary.

Key Takeaways:

Total assets are greater than total liabilities. However, we have seen a spike in liabilities in the last column, an increase of about $1 billion. Working capital is hovering between $1 and $2 billion. Cash and other equivalents are stronger from prior years, increasing cash in the final column, showing budget cuts ABNB has made to survive the pandemic.

The increase in Bookings year over year shows the growth of the industry and the potential it has to offer, increasing dramatically since 2015 and maintaining this solid growth.

The increase in free cash flow also supports this growing company. We do see a sharp decline in cash flow during 2019, but note that expenses also increased that year in the financial statement.

Despite the decrease in both domestic and international travel, domestic travel has rebounded significantly, showing the flexibility ABNB offers even during difficult housing times.

Most bookings are under 1 month; however, there are consistent bookings of more than 1 month stays, asking the question, is there a more viable option to rent long-term in a different area?

 

Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.

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