Airbnb: ADR's and Affordability
From “Capitalizing On Adversity” (February 2023):
“In mid-2022, as Airbnb CEO Brian Chesky reflected on the company’s evolution since the beginning of the pandemic, he said the following: ‘Some of the best companies are born in recessions, they're born in crisis; adversity will make great companies better if they can make it through.’ Airbnb was founded during the global financial crisis, and it was reborn twelve years later during the pandemic. They made it through extreme adversity in 2020, and they’re a much better business for having experienced it.”
Airbnb, the global leader in alternative accommodations, reported 20% YoY revenue growth in Q1 FY23 (+24% constant currency). This reflects a 19% YoY increase in Nights & Experiences booked (N&E), to 121.1 million in Q1, with average daily rates (ADR’s) unchanged at ~$168 per night. As shown below, total N&E booked over the past year (TTM) were 413 million – up nearly 30% from pre-pandemic volumes at Airbnb (327 million in Q4 FY19).
I’ve written previously about the evolution of Airbnb’s average daily rates (ADR’s), and it remains an important topic for investors; higher ADR’s have contributed significantly to the company’s growth and profitability / margin improvement over the past 3-4 years. That’s been great for the income statement (and also for hosts), but bad for guests: at $168 per night, Airbnb’s ADR’s in Q1 were ~38% higher than pre-pandemic levels (versus Q1 FY19 to account for any quarterly seasonality); by comparison, Marriott’s North American ADR’s are up ~13% over the same period. (As shown in the 10-K and the S-1, GBV per North American N&E has increased by ~45% over the past three years, from ~$165 in 2019 to ~$240 in 2022). As Chesky noted on the Q4 call, “affordability and great value are key reasons people use Airbnb, and we have to continue to make sure we have that.” They’ve announced a few efforts to help here – for example, lower service fees for long-term stays – but the primary answer to the problem will come by balancing supply and demand (the preferable solution is growing supply / host competition).
This comment, from Chesky on the Q1 call, did a good job of framing the current situation: “I think our long-term growth is going to only be as strong as our supply. What happened in 2020 and 2021 was demand grew faster than supply. And initially, this was a great thing. But the problem is that when demand grows faster than supply and there's supply constraints, prices generally go up. And as prices rose, while that’s been good for the bottom line, affordability in this economy is a major issue [especially for young people]. One of the most important things we can do to make Airbnb affordable is to make sure we have enough supply on the platform.”