The Problem With Airbnb
My breakdown of Airbnb pros and cons along with stock analysis
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People are pissed at Airbnb and for good reason. As a thought experiment, I tweeted out this excerpt a couple of weeks ago during an incredible stay at Merriot Canyon Villas in Pheonix Arizona.
To my surprise, very few people fought me over this (read the comments they are nothing short of epic).
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Why People Are Mad At Airbnb
To start, I am going to run down the widespread amount of complaints that I have heard from friends, family, my own brain, and even Twitter comments. I’m well aware that most of these complaints are opinions and circumstantial - but later in this article I break down them more analytically.
1) Airbnb fees are insane - there generally is a cleaning fee, service fee, and “occupancy taxes and fees” that are tacked on to the cost of the nightly stay that is plastered in large font on the Airbnb search map.
For example:
Oh no way, a $234 two night to stay in a tic tac-sized room near NYC?? What a deal!
Wrong.
Once you get to reserve the place this is what you are looking at…
oof. $412 for the whole trip (not $374 showed in total at the bottom corner of the first picture). Also, keep in mind that it took until LATE 2019 for Airbnb to even show the total figures (including taxes, cleaning, occupancy fee, etc.) before checkout.
2) Wait, you want me to clean AND pay for a cleaning fee? - If you have stayed in a handful of Airbnbs you know that some stays have a laundry list of chores attached to checkout. Take out the garbage, clean the sheets, feed my pet goldfish… the list goes on. I’m not kidding I have seen some lists that are 15 bullet points long and absolutely absurd. I’m personally fine with doing these things if there isn't a $100 cleaning fee attached but what is the cleaning fee for if I am the one doing it? It starts to make you wonder if you are house sitting or on vacation.
3) No room service - enough said.
4) Lack of consistency - Again, if you have stayed in your fair share in Airbnbs you know that you are rolling the dice. Sometimes the reservation is as advertised, other times it is far from it and you find out the 4 train runs at midnight over your room and the AC unit “happened to stop working” last week. I could go on with examples but I think you get the point. When you book a hotel you generally get around near the same experience every time and you get what you paid for.
5) Having to socialize with the owner - If you don’t want to sell your arm and leg for an Airbnb stay you can opt into having a shared space. The option to do this generally is a lower charge but can at times be not worth the headache in the end. This is when the owner is still living at the Airbnb and you have your own room - but you have to share the living room or kitchen with the owner. To be completely transparent, the times that I have done this I have never had an issue. More often than not, the only time I would see the owner was at check-in and checkout but I have heard countless stories of people staying at shared Airbnbs and not having a pleasant time.
6) Finding a great Airbnb takes skill and experience - If you have never stayed in an Airbnb the likelihood of getting a good deal and experience is extremely low. You have to be able to decipher several things: what the exact location and surrounding areas are like, if the photos of the place are credible, owner reviews, and whether or not the price of the Airbnb is justified. To be fair, you have to have many of the same skills when looking into a hotel but we all know the background homework required with an Airbnb is much more cumbersome.
Data Time
According to Airbnb’s shareholder letter, the average daily rate was $161 a day in Q2 of 2021 which was a 41% increase from Q2 of 2020.
The primary driver of ADR appreciation continues to be the significant mix shift towards bookings in North America, entire homes, and non-urban destinations, all of which tend to have higher ADR. The secondary driver is an increase in pricing by Hosts in certain high-demand segments. This second driver increased from Q1 2021 to Q2 2021, but remained a minority of the overall ADR appreciation as compared to 2020 and 2019.
According to Statista, “The average daily rate (ADR) of hotels in the United States was 90.92 U.S. dollars as of November 2020. Due to the impact of the coronavirus pandemic in the hotel industry, this figure dropped to about 27.7 percent when compared to last year's figure”.
Extending An Olive Branch
There are many great things about Airbnb that I will list below.
1) The experience - When vacationing you don’t want to feel like a complete tourist and staying in someone’s home/rental offers you the ability to feel like you are a part of the culture of the location you are staying at.
2) Location - Like hotels, Airbnbs often are more expensive closer to the heart of the city however if you have a keen eye and experience with booking you can get a killer location for cheaper. Don’t get me wrong it’s rare but it can be done. There is nothing like walking out of your Airbnb and being right next to the local market or local eateries which most hotels can’t offer.
New York City Airbnb tip: Don’t get an Airbnb in the city. The most important thing to note when staying NYC is the location of the subways since that's the predominant form of travel. You can stay in an Airbnb in Brooklyn or even Queens for much cheaper and get to your favorite locations quicker if you are right next to a subway. There are several locations in NYC (Upper West Side) that tourists thinking they are getting a good Airbnb deal not knowing they are blocks away from the nearest subway.
3) Perks - Being able to have a kitchen with utensils and other fixtures can make the cost of your entire vacation much cheaper and greatly enhance your overall experience. This is why Airbnbs are generally favored for families/larger groups or prolonged stays. Airbnbs cost-wise level out favorably the longer the stay compared to a hotel. Along with this, sometimes an Airbnb will have a perk that no hotel can offer. For example, I once stayed in an Airbnb in which the bathroom had spa/sauna/shower unit installation all in one. Often times the TVs and other electronics will be much better than what you would find in an Airbnb.
My argument: Before COVID I was an avid Airbnb user. I felt that the perks and experience were well worth the cost and having a keen eye for finding good deals definitely helped. I put up with the outrageous tacked-on fees because in my mind the pros outweighed the cons. When COVID hit things changed. Hotels got destroyed and they had to up their game significantly (customer service, perks, deals, etc.) so hotels started to become much more favorable. I felt that the table was then titled in the hotel’s favor when I knew that I could pay less for a hotel and not deal with the many possible inconveniences of an Airbnb. Now that we are in a weird Delta variant/post COVID era the sands have maybe shifted back slightly but I still don’t think they have convinced me enough to switch back to being an avid Airbnb user.
$ABNB
With all investments, I try to leave my personal emotions at the door. I’m not an investor in Airbnb but definitely have kept my eye on it. Airbnb is a complex company that is solving very difficult problems. They have to appease not only customers but also shareholders and renters. It makes me laugh but it almost seems like everyone is mad at them at the same time and there are stuck in the middle trying to juggle all three of the relationships.
Airbnb was one of the hottest IPOs of 2020 by debuting at a staggering share price of $146 a share up which was a 113% increase from its offering price of $68. When I saw Airbnbs price shoot up that high right before the public could by I said to myself the classic Shark Tank line: “For that reason, I’m out”.
So far $ABNB has not had a profitable quarter since 2020 Q3 and like hotels, the company suffered immensely during COVID.
In 2021 Q2 Airbnb finally bounced back their revenue to above $1.3 B which was the same number they posted the same quarter a year prior. Gross profit has also bounced back to the same numbers as a year prior. Their net income this past quarter has dramatically increased (-$68 M vs. -1.16 B a quarter prior) so that is definitely a positive.
Conclusion
I don’t hate Airbnb and have not written it off as a possible future investment. In my opinion, I need to see consecutive quarters with higher revenues and if possible positive net income. I also don’t want to touch a company right now that heavily relies on the status of the pandemic. At the end of the day, I think Airbnb is here to stay. The business is innovative and has great things going for it but I’d rather put my money with fortified winners in such an unpredictable market and time period.
Thank you all who read this far and I hope my “hit piece” didn’t anger too many folks.
As always I know nothing, this is all my opinion and not financial advice 😊
Have a great weekend!
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Tried to book an Airbnb for next weekend in Amsterdam and realised it doesn’t make any sense unless you’re looking for a 25€night bunk bed, sharing toilet, it wasn’t my case. All Airbnb that looked good to me were not cheaper than a hotel so I ended up booking a hotel. Unless it’s at least 30% cheaper than a hotel Airbnb will gradually fade away from the market.
Thanks for sharing your opinion.