STOCK PICK: A Modern Approach To Worldwide Stays
Like Uber, but for the hotel, stays and experiences industry.
When Joe Gebbia needed some extra money, he decided to have a garage sale. When closing up shop for the day, one of his customers mentioned he needed a place to stay. Joe, being taken by surprise, couldn’t say no to a guy who had no place to stay the night and offered him to stay on a blow-up mattress at his home. Little did he know this would be the start of a crazy venture that would later be called Airbnb.
Company Overview
What if you could make extra money by renting out your spare bedrooms? That’s precisely the thought that Joe Gebbia and Brian Chesky had that sparked the idea to launch Airbnb. What started as a letter from their landlord stating that rent was increasing by 25% ended up being the motivation behind what is now roughly a $66.9 billion company. In case you’re wondering where the name came from, Airbnb stands for “Air Bed ‘N Breakfast” and was founded in 2007 in San Francisco, California, by Joe Gebbia and Brian Chesky.1
Airbnb is a platform that connects hosts and guests online to book places to stay. Got extra real estate you'd like to monetize? List it on Airbnb for short stays. Looking for a place to reside for the weekend vacation? Airbnb opens up your options to virtually any home or room worldwide. You could call it the modern-day hotel, or, the modern-day version of renting out your home or spare rooms for short stays. Much like Uber, Airbnb is like the Uber of hotel rooms.
Leadership
Joe Gebbia and Brian Chesky founded Airbnb in 2007. Brian attended the Rhode Island School of Design in 1999 and graduated with a Bachelor of Fine Arts in Industrial Design in 2004. Before founding Airbnb, Brian was an industrial designer and strategist at 3DID, Inc. in Los Angeles. Brian was named one of Time’s “100 Most Influential People of 2015.”2
Joe Gebbia attended the Rhode Island School of Design, where he met Brian and graduated in 2005 with a Bachelor of Fine Arts in Graphic Design & Industrial Design. He was named in Business Weeks' Top 20 Best Young Tech Entrepreneurs in 2009. Joe is the Chief Product Officer for Airbnb and oversees the design studio and non-profit foundation for the company.3
Why Invest In Airbnb?
Great Financials
What stands out most on Airbnb’s financials is its jaw-dropping growth ratios. As of this writing, Airbnb boasts the following financial profile:
Quarterly Revenue Growth (YoY): 20.50%
Earnings per share growth (YoY): 130.90%
Total Cash: $10.59 billion
Total Debt: $2.34 billion
Levered Free Cash Flow: $2.8 billion
The way I see Airbnb from a financial perspective is that they are in hyper-growth mode. With their earnings growing by triple digits and their revenue growth by double digits, I feel very optimistic about investing in Airbnb.
First Mover Advantage
Airbnb did the impossible - they took a concept that may initially seem a bit sketchy (renting out your spare rooms to complete strangers) and globalized it while disrupting the hotel industry. It’s been seen time and time again that first movers often maintain their advantage as their industry grows. Airbnb is in what many call a “blue ocean” where sharks have yet to discover. The market is for the taking, and Airbnb has a tremendous head start.
Innovative & Visionary Founders
Joe Gebbia and Brian Chesky took a risky concept that presented multiple obstacles and turned it into a world-changing company. To illustrate this fact, consider the following story as told by the founders.
In 2008, Joe and Brian were in a penny-pinch, having limited cash resources to keep the lights on at Airbnb. So, they developed a plan to raise some extra money AND get new customers. They discovered that presidential rallies caused hotels to be booked solid. So, Airbnb began promoting its services to people in need of a last-minute place to stay to attend an Obama campaign rally. During the event, Joe and Brian created a new cereal called “Obama O’s” and sold them to people attending the event. They bought tons of cereal boxes and rebranded them, then sold them, raising an additional $20k to fund their venture.4
Here’s another example. In March of 2020, Airbnb had to send a saddening letter to the company. Due to the unexpected effects of the COVID-19 pandemic, the company would be laying off 25% of the company - a difficult message to give to people you care about so much running the company of your dreams. What's more, is the company that took 12 years to build lost 80% of its value in just 8 weeks! An IPO seemed impossible at this point. With the visionary founder's mindset and innovative personality, Airbnb actually went public later that year in December of 2020, defying the impossible.
If that isn’t innovation, I don’t know what is! The objective of telling these stories is to give an example of how Airbnb’s founders innovate and adapt until they are successful. As an investor, this gives me peace of mind that I'm buying in on a company that’s in good hands.
Huge Network Effect
A byproduct of being the first mover is building a powerful network effect. What is a network effect? For example, each new user of Airbnb creates more and more value for the company. Why? Because the more people that are on the platform, the more liquid it is for buyers and sellers to connect and find great places to stay and rent out their real estate. Another example of a network effect is Facebook. The more users that are on Facebook, the more valuable the platform becomes. To this day, many prefer other platforms for social media but have a Facebook profile and stay on the platform because - quite simply - it’s where everyone else and their dog is!
Positive Culture
As briefly mentioned above, Airbnb had to lay off 25% of its workforce and lost 80% of its value in March of 2020 due to the effects of COVID-19. What more does a company have to do to sour the taste that employees have with their job? Rather than cutting ties with its laid-off employees, Airbnb offered a 14-week severance, gave them a year's worth of health insurance, and let them keep their laptops. Furthermore, Airbnb dedicated a portion of its recruiting department to helping recently laid-off employees find new jobs. What anyone could assume would destroy a company culture was turned into a crutch to promote loyalty, and sincerity and prove that the company cares for its employees.5
Airbnb’s positive culture can be seen in trying times like this as well as popular job boards such as Glassdoor.com. Of over 1800 reviews, Airbnb has an overall company rating of 4.2 out of 5 stars, with over 83% of employees approving of the CEO’s leadership.6 From a product standpoint, customers clearly love the app. On Apple’s App Store, the Airbnb app currently has a 4.8-star rating from over 598,000 ratings. Suffice it to say the culture at Airbnb is positive inside and out.
My Opinion
I’m a big believer in the entrepreneur economy, the gig economy, and the share economy (rideshare, etc.). Airbnb is just that, but for one of the biggest industries, there is - hospitality and real estate. Would you rather stay the night at a nice hotel with your friends costing $250 per night or share the bill of a six-bedroom Airbnb house with a large pool outback for $125 per night (half the cost of the hotel)? For me, I'd pick the latter hands down no questions asked. That’s why I'm a long-term investor in Airbnb.