In the second quarter, at the height of U.S. lockdown and the worst of the pandemic globally, Airbnb’s revenue dove 67% and its losses ballooned to $400 million. By April, its valuation had reportedly fallen to $18 billion from $31 billion pre-pandemic. In May, it laid off 25% of its workforce. It all makes sense: with travel ground to a halt, no one was booking a trip to stay in a stranger’s home.
Yet by July, Airbnb said its bookings were back to pre-pandemic levels.
The key to that surprise turnaround is in the type of stays booked: local, drivable, within 300 miles of the guest’s home address. Thanks to the company’s S-1 filing, we now see that Airbnb’s Q3 revenue only dipped 18% year over year from Q3 2019, and it booked a profit of $219.3 million thanks to dramatic spending cuts.
Airbnb still booked a net loss of $696.9 million for the first nine months of 2020, more than double its loss of $322 million in the first nine months of 2019. Revenue for the first nine months of 2020 dropped 32% to $2.52 billion.
But Airbnb can point to its clear rebound in Q3, despite the pandemic, as a sign of its resiliency and future viability for investors. (Its S-1 filing even has a section touting its “resilient model.”) The company can make the case that the lessons it has learned from the pandemic made it stronger and smarter.
Air travel decline is just fine for Airbnb
Almost immediately after U.S. lockdown began, Airbnb began to see customers booking stays closer to where they live—and for longer periods of time. Air travel had ground to a halt, but Americans could still drive to remote locations to quarantine in their own state or a nearby state.
Airbnb shared some of the data in a blog post as early as April. Between February and April 2020, the average distance between guests’ home addresses and the Airbnb locations they booked decreased by 20%. Longer-term stays also grew by 20% in the second half of March.
Small toy figures are seen in front of diplayed Airbnb logo in this illustration taken March 19, 2020. REUTERS/Dado Ruvic/Illustration
Those trends deepened as the pandemic dragged on, and Airbnb responded quickly by adjusting its landing page design to display hyper-local listings more prominently. Airbnb hosts also responded: 80% of hosts adjusted their options to accept longer-term stays. Half of hosts also began offering discounts for stays of one month or longer.
This has transformed the way Airbnb sees itself. The company now believes it can “address 10% of the global real estate rental market, or $162 billion, with long-term stays on our platform,” leading to a long-term stay TAM (total addressable market, the in-vogue financial metric of the moment for Silicon Valley startups wooing investors) of $210 billion. Airbnb says its overall TAM is $3.4 trillion ($1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for “experiences”).
Experts have predicted it will take until 2023 for air travel to return to pre-pandemic levels, but that’s just fine for Airbnb.
The ‘flexible work’ future is great for Airbnb
Remote work was already a growing trend before the pandemic, and amid the pandemic it has soared, which has boosted the stock prices of work-from-home computing names like Zoom, Slack, Logitech, CrowdStrike, and Snowflake.
Now most experts predict that even beyond the pandemic, many U.S. workers will want to stick to a “hybrid” or “flexible work” schedule, since it’s difficult to un-learn the behavior after more than nine months of doing it. (This is why it’s hard to believe the “stay at home” tech stocks will all take a dive immediately after the pandemic.) Wharton professor Mauro Guillen, author of the book “2030: How Today’s Biggest Trends Will Collide and Reshape the Future of Everything,” predicts that a hybrid work model will become the norm in the next few years.
“Most of what I hear from companies right now is that we're going to go to a hybrid model,” Guillen said on Yahoo Finance Live in August. “So, a majority of American employees who are working from home now, they're saying, ‘Yes, I would like to have a remote component in my work week, but I would like to also go to the office.’”
Airbnb co-founder and CEO Brian Chesky during an event Thursday, Feb. 22, 2018, in San Francisco. (AP Photo/Eric Risberg)
If the future of work is a hybrid model, that further benefits Airbnb. The company’s executives have said in multiple interviews that the line between work and travel is blurring. That goes hand-in-hand with booking longer stays, since there’s no urgency to get home by Monday if you can work from the Airbnb. Mid-week Airbnb stays also tend to be much cheaper than weekends.
Airbnb says it can already tell from early booking data for 2021 that the trend will continue. “In 2021, work from home could become work from any home as remote working continues to be a reality for many people,” the company wrote in a blog post in October.
Airbnb commissioned a survey of U.S. travelers and found that 25% of respondents expect they will be able to “live where they want to and work remotely” thanks to the growing acceptance of remote work. If booking an Airbnb for a week or longer becomes both a pleasure trip and work trip, the very concept of Airbnb will shift for many people, away from just being a vacation platform.
That fits nicely with the startup’s initial creation anyway; its cofounders Brian Chesky and Joe Gebbia came up with the idea in San Francisco in 2007 when they rented out their apartment to business travelers who were in town for a design conference.
Airbnb no longer needs to spend much on marketing
At the end of March, Airbnb slashed its marketing budget by $800 million. (For comparison: Airbnb spent $1.18 billion on sales and marketing in the first nine months of 2019 and just $545 million in the first nine months of 2020.) It then experienced its strong Q3 rebound anyway.
The lesson is clear: Airbnb can stand to spend far less on brand marketing than it did in the past. New Yorkers will remember well a time when subway cars were plastered with Airbnb advertisements. But now Airbnb has become a household name. The company knows it: “Our brand is recognized globally, and ‘Airbnb’ is used as a noun and a verb in countries all over the world,” reads the S-1 filing.
It’s no wonder that the company says it expects to spend less on sales and marketing in 2021 than it did in 2019. That, too, should add appeal for investors: they’re buying into a disruptor of a long-established industry (hotels) that has now itself become ubiquitous in the culture.
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Daniel Roberts is an editor-at-large at Yahoo Finance and closely covers tech. Follow him on Twitter at @readDanwrite.
