The rise of accommodation on Airbnb

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Airbnb (NASDAQ: ABNB) is already a big company. The stock was almost a mega-capitalization when it went public, with a market cap exceeding $ 100 billion on the first day of trading. (Its valuation is around $ 115 billion now.) When a stock is already this big, is there room for growth?

In the case of Airbnb, the answer is absolutely “yes”. The company values ​​its total addressable market (TAM) at $ 3.4 trillion. A lot of people think that TAM is some kind of mythical beast. A company never captures the entire TAM. Airbnb’s competitors include hotels and motels, and many people will prefer to stay in one of these buildings.

Nonetheless, we are now starting to see an interesting change in human behavior. Airbnb reports that 4 million people host foreigners on its platform. Perhaps many of these people are regulars at the B&B guesthouse service. But I suspect we are seeing a lot of new people entering this industry for the first time. And that relatively small number – 4 million hosts – suggests how much space there is for Airbnb to grow.

Image source: Getty Images

The B&B industry is old – and now we are witnessing a renaissance

Airbnb has taken an old concept – the bed and breakfast – and brought it into the 21st century. The company is one of the best and the first to use the Internet to revolutionize the bed and breakfast industry. This is how this very ancient industry – in the Middle Ages, the monasteries offered guest rooms to travelers – has radically changed.

In the 20th century, we saw the rise of massive hotels in big cities. With the invention of the airplane, it brought about a huge shift in world travel. More and more humans wanted to see the world, visit various continents and see how others lived. The bed and breakfast was a small part of this phenomenon.

A person who wanted to create a B&B was at a serious disadvantage in terms of marketing and communication. People would travel and then stay in a hotel, because that’s what everyone did, and it was easy and convenient. Nonetheless, even though it was under the radar, the B&B industry has flourished in some way underground. When people went west to get rich from the California Gold Rush, they often stayed in a B&B.

When the internet revolution came, you had top dogs and trailblazers who went out and established themselves as the internet portal for finding housing around the world, like Reserve assets (NASDAQ: BKNG) and Expedia (NASDAQ: EXPE), which now owns Airbnb competitor VRBO. Unsurprisingly, these early pioneers focused on the hotel market. That’s because hotels are famous and well-publicized, while a B&B is totally unfamiliar and really a little potato (at least that’s what these companies thought!).

There was no rush to create an internet portal for the B&B industry. It didn’t even occur to people to do that. So, a decade after the launch of Priceline and Expedia, a couple of friends from San Francisco started a website to make money. There was a convention coming into town and all the hotels were full so they wanted to rent air mattresses in their apartment to people who needed a place to stay. And Airbnb was born.

Airbnb has grown steadily since

The founders of Airbnb were literally the first hosts to use the service. Today, 4 million hosts use Airbnb to make money. So if you are wondering how big this business can get, well, how many people are there in the world with houses? Honestly, that $ 3.4 trillion AMR is a low estimate. The market opportunity is ridiculously large.

Architecture and design the magazine estimates that there are 2.3 billion households in the world. Thus, with only 4 million hosts in its network, Airbnb has captured 0.017% of households in the world. Can the company get up to 1% or maybe even 2%? Do the math on that, and the opportunity is staggering.

What’s really mind-boggling is how sweet this business model really is. If you go to the Airbnb site, you have 4 million options where you can stay, all over the world. And Airbnb doesn’t have any of the hotel industry’s massive debt, since it doesn’t have to build hotels. Hosts on Airbnb create the listing, so Airbnb’s cost to construct the listing is $ 0. What hotel chain can compete with that?

And because its website is the hub of this B&B revolution, Airbnb receives a percentage every time a rental is made. Airbnb collects a 3% service fee from its hosts, and the company charges customers a 14% service fee.

Meanwhile, the hosts on Airbnb are very happy. This is because the hosts first created their living space for themselves. But now Airbnb is helping people start their own side business. The average Airbnb host earns $ 7,900 per year on the platform by providing a place to stay for guests. In many places around the world, $ 7,900 is a lot of money. And your work is minimal – just be a good host.

In the last quarter, Airbnb reported that hosts made $ 12.8 billion on the platform. This figure gave Airbnb $ 2.2 billion in revenue over the three-month period. This is an incredible number for a young company. Obviously, it is the 4 million entrepreneurs of its platform who succeed.

And this story of growth has only just begun. This year, Airbnb launched a major marketing campaign. His goal ? Hire more hosts.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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