My First Reaction To Airbnb's New Services Launch (ABNB)

Plus, a podcast interview with Speedwell Research on the stock

YouTube

Spotify

Apple Podcasts

In the company’s typical overhyped fashion, Airbnb has launched the expansion of services and experiences.

We talk at length with Drew Cohen from Speedwell Research on the Chit Chat Stocks Podcast this week (links above) on Airbnb’s future growth opportunities. He hit the nail on the head by predicting an expansion of services for travel customers using Airbnb.

Hyping up product releases is fine, it gets you free marketing through the press. I could write about numerous other topics on this newsletter, but I chose Airbnb. Multiply this out to thousands of other larger organizations around the world. It is a game Airbnb likes to play.

What did Airbnb launch?

Airbnb has two new products on its application now. Well, one is “new” in the sense that it is getting relaunched out of dormancy. They are Experiences and Services.

Experiences are essentially tours and activities an Airbnb guest may want to do on a vacation.

There is a large existing market for these types of offerings. When you are on a vacation — especially in a city — you are likely to take in at least one tour or localized activity. This is more true for the Airbnb customer vs. the isolated hotel resort goer.

Here is what pops up when I search Experiences in Buenos Aires:

I’d try some of these, but in order to scale up the offering, Airbnb is going to need to attract more and more experience hosts to the marketplace. With a captive audience that is specifically looking to do these kind of things on vacation, I believe they will do fine driving demand.

Supply may be more of an issue, but we already have an example of this type of application working: Viator. It apparently has over 1,000 listings in Buenos Aires. Airbnb can market to these hosts and convince them to dual-list. It has more capital and more eyeballs than Viator, giving Airbnb a competitive advantage even when starting in second place.

The boldest product bet is Services. These are things you might need on vacation to make a stay better.

From CNBC:

“The app’s new services tab offers 10 categories users can select and book during their rental. The offerings include services such as spa treatments, catered or prepared meals, or personal training sessions. These service offerings will debut in 260 cities worldwide. The company hopes this update will put Airbnb on par with offerings travelers often find at hotels and resorts, Stephenson said.”

My skepticism rises a bit on this offering, but perhaps it is catered more for wealthier Airbnb guests and to convince luxury customers to switch from hotels to an Airbnb. If you stay at an upscale Airbnb it would be nice to have food catered, spa services, and other things you usually can get at a nice hotel.

I don’t necessarily get the personal training aspect, but it doesn’t matter if some of these products fail. Airbnb wants to become the “Airbnb for Everything” and this is just the testing waters.

It will be a long journey. The category is pretty empty right now:

Financial implications

Airbnb likely has two financial goals with this product expansion. First is the obvious one: get more Airbnb travelers to spend money on Experiences and Services.

Second is more subtle but may have a larger addressable market. Airbnb’s goal is to switch loyal hotel customers to Airbnb (at least some of the time). With a more comprehensive offering, I think they can. It is not about the money they will make directly from services, but the money they will make from a wealthy family booking a $10,000 house for a week because of the comprehensive services offering.

In the long-term, Chesky wants non-travelers to book experiences and services on Airbnb. I am a bit skeptical, but would not doubt this team. It is one of the premier growth stories of financial markets in the last two decades.

However it shakes out, I think Airbnb can grow its revenue at a 10%+ rate for the next decade. Discussing with Speedwell Research on the podcast this week, the unit economics of the business indicate the stock is very cheap for those with a time horizon of a decade.

I bought shares of Airbnb with an average cost basis of ~$110. It is a stock I believe can turn into a never sell position in my portfolio.

-Brett