MARCH 16, 2021
From our crew to You. Thank You for taking the time to share Us a Like. It matters.
Who wants to sleep in someone else’s bed? It depends–on where it is, whose it is, and whether they’re going to be there. Responses will vary. Think about it. Regardless of where you go hotels are really no different. The Hyatt Ziva Cancun is utterly brilliant, but staff didn’t order in a brand new bed when they realized we were booking. Sleeping in your own bed with your furry loving baby beside you is tops. Perhaps then Airbnb’s offering the next best thing, only different, and located nearly anywhere you may ever wish to be. And they’ll show you around as well. How much is that worth?
What’s an experience? For Airbnb “Experiences” are personally led and “curated” activities, “ones that go beyond the typical tour or class, designed and led by locals all over the world.”–Airbnb, Experience hosting. When you land on Airbnb the first thing you see is a search box allowing you to “Find places to stay on Airbnb.” That way you can “Discover entire homes and private rooms perfect for any trip.” The second thing you’ll see is “Earn $1,447/m by hosting travelers.” In a single swipe you see both sides of ABNB’s business. The $1447’s aspirational. Listen to the call. Most hosts earn leas then $10K annually, at approximately a 17% occupancy rate. But then, it depends on what you’re doing.
Nothing worthwhile is cheap. ABNB is no different, now trading at a P/S of 32.3. That’s price-to-sales, not earnings. Such is par for the course when valuing companies early in their growth cycle. That number moves constantly, with the price. The above multiple was calculated at a $211 share price against ABNB’s trailing twelve month sales of $6.52 a share. The company hasn’t provided a forward sales estimate. In comparison, PINS is currently trading at a 25.3 P/S based on its’ ttm sales per share of $2.84. All calculations are based on prices as of 10:37AM EST, 3-15-21.
The Airbnb platform creates a link between travelers and property owners interested in creating income. Just like so many other terrific ideas it seems obvious, once someone does it. Anywhere on the planet you want to be Airbnb makes it easy, in four simple steps; “Filter down your search, dig into the details, book with peace of mind, arrive and enjoy.’ Have questions before or during? “Your host is only a message away.” And just like everything else now, Hosts are rated, the outstanding ones earn the moniker “Superhost.”
San Francisco-based Airbnb and its’ 5600 employees are in the “alternative accommodations” business. So are both Booking Holding Inc.(BKNG) and Expedia Group(EXPE.) ABNB closed last week up 14.91%. The other two climbed 4.07% and 4.84% respectively. Year-to-date it’s again ABNB leading with a climb of 40.75%, versus EXPE at 31.8% and BKNG at just 7.8%. What’s this tell us about the travel space? It’s traveling, and Airbnb’s cutting the widest swath. ABNB’s on the move even though it hasn’t been public long enough to produce a six month growth rate or display a 200-day SMA. Who else can we use as a yard stick to measure the success of Airbnb?
Uber sports a very similar market cap. UBER’s a $109B company currently, compared to ABNB’s $118B. UBER’s also a high-profile Wall Street darling, a name brand secular growth story, one competing for the same investor support. Make no mistake. Companies compete fiercely for the investor dollar.
These companies offer very different prospects on their paths toward profitability. Uber’s been public for two years, can drive you across town, but won’t offer you a room. Meanwhile, Airbnb does, even on super-short notice, even if you should be breathalyzed. What else? They also provide 24/7 customer support, in eleven languages, if you lock yourself in the bathroom or can’t find your way out of the parking garage. And?
“We believe ABNB’s quarterly bookings will surpass prior peak levels by summer’s end.”–CFRA Research, March 6, 2021.
Two years back on May 30th, 2019, Uber reported it’s first quarter as a public company. They lost money. On the 25th of last month ABNB reported its’ very first quarter. They lost money, $10.84 Non-GAAP a share. Simply stupefying. But young companies do that. It’s part of the process. Netflix was born in the late summer of ’97, in Scott’s Valley, CA. NFLX is just now turning profitable. But that was by choice, like Amazon. So as UBER burns cash by the pallet investors have bid shares up by 60% over the past six months, and by 125% over the past twelve.
So is ABNB destined to be another long-haul cash burn? “We envision that ABNB will squeak out a positive adjusted EBIT(earnings before interest and taxes) figure in 2021, even as expenses come back quickly, and sales ramp over coming quarters.”–CFRA, March 6th.
Airbnb’s a stellar example of secular growth. It doesn’t require a booming economy in order to thrive. We feel it’s on the verge of thriving once again. It’s relatively early in its’ maturation cycle, despite its’ long time as a private player. Thus it should have many strong years of enormous earnings and revenue growth, the beating heart of soaring share price appreciation.
Further, it’s capital-light, meaning that it doesn’t require a mountain range worth of capital to drive that hoped-for growth and expansion. In fact, the company’s been able to cut costs, such as marketing, as revenue grows back following the lockdown. Listen to the call. Find the link to the Shareholder Letter below. Its’ business model is a freak show of goodness. It creates yonks’ of room for sprawling margins, gross, operating, and profit. Robust and widening margins create canon-loads of free cash fluttering down over delirious shareholders. That would be Us.
Airbnb shares more than the same business model with PINS. It also shares similar trading characteristics. It’s a high-profile secular growth brand, one on the verge of breaking through to the promised land of profitability. It’s a high-flier, the kind that always takes the most serious beating when markets correct. It also possesses the rebound strength to return in terra-stomping Godzilla-style after any pullback. In fact ABNB did take a beating in the recent NASDAQ face-plant. From a closing high of $216.84 on February 11th, shares sank to a low of $179.81 on March 5th. That’s exactly 17%. Shares closed last Friday, 3-12-21, at $206.74. Shares closed on Monday at $209.99.
Like we said, it’s expensive, like anything else valued on the terrible price-to-sales metric. Yet it’s not Snowflake expensive and management has years of hyper-valuable experience as a private company, despite its’ single quarter public showing. As important as all of that is, Airbnb’s light capital requirement may be even more so. CFRA models it at “less than 2% for the next decade.” Again, simply stupefying. The company’s a software platform, not an auto manufacturer. It’s one yet led by founding talent in Brian Chesky. Company founders are irreplaceable as they feel about the company like no one else. The photo above is L.A. at $1200 a night and the one below is Isla Mujeres, same price for a week. We’ll go Mexico.
We’ve said that you’ll find ABNB is San Francisco. Does that matter? Here’s why. Potential cost savings, if they want it. Here’s the story. Pinterest just side-stepped a planned HQ move within the city. It’s actually possible they could leave the city. Others are. Why? The cost. It’s also a work-from-home thing. The ability to recruit from anywhere is a talent win. Working form home means potentially hiring people from any where they are, while paying less. How radically does that expand the potential talent pool? Others will be doing so–are doing so. Think Twitter. ABNB also has this option.
At the tail end of last August Pinterest canceled its’ lease for a yet-to-be built twin skyrise at 88 Bluxome, in China Basin just across from the 4th and King Caltrain station. What’d management say? “We are specifically rethinking where future employees could be based,” said CFO Todd Morgenfeld. He adds “It gives us the opportunity to hire people from a wider range of backgrounds and experiences.”
The savings on labor could prove as much as 30%. Sam Francisco may be beautiful by night, but it has the highest cost of living in the country for large metro areas, even higher than NYC. You don’t pay $89.5 million to break out of your lease without knowing a way to make it pay. Airbnb’s in the exact same position, as is Docusign(DOCS) and many others.
-On the Call-
Out on the west coast at 888 Brannan CEO Brian Chesky and CFO Dave Stephenson huddled to high-light the company’s startling Q4/FY2020 earnings results. On that February 25th call the team revealed this:
Immediately we begin to understand that “Experiences” are as important to management as booked nights. Experiences aren’t simply add-ons, but rather a focus. We learn soon that “Experiences are a very important product for us. Guests actually often liked experiences more than their accommodations. More 5-Star ratings come from Experiences than stays.”–Co-Founder and CEO Brian Chesky.
Brain kicks it off by telling us “We’re still in a pandemic, so we know how lucky we are to be in this position. In 2020 everything changed; work, travel, our business. Our business model proved to be adaptable and resilient. We’d projected that our revenue could be half of 2019’s.” What did they instead deliver? FY2020 revenue of $3.4 billion, a decrease of 30% Y/Y, not 50%. Total revenue dropped by $1.4billion from 2019’s $4.8b. net. Brian; “Our adjusted EBITDA for 2020 was slightly better than for 2019.” Huh? Q4 revenue was down 22% Y/Y. Nonetheless, adjusted EBITDA for Q4 was $250M higher, despite a $250M drop in revenue. That translates into a half a billion dollar swing. WTF?
Brian: “The pandemic made us a better company. It increased our focus and efficiency. It was only possible because of our hosts. Without hosts we only have crowded hotels. That’s why hosting is at the center of what we do. 90% of our offerings are from individuals, not hotels.”
Analyst question: “What about host supply acquisition strategy?” CFO Dave Stephenson: “About 4 million hosts are currently on our site. We don’t have to acquire. They come to us. People aren’t going to the same 30 cities. They’re driving to places nearby. Guests become new hosts. This smooths out our supply of hosts. When hosts get more booked up, they expand, or tell their friends about hosting.”
“We started Airbnb in our apartment on three air mattresses, and began the company during a recession in 2008. Many[hosts] came to us then. The conversion rate is the name of the game.” He’s talking here about guests converting to hosting. “We’re going to allow people to become a host in ten minutes. If people knew you can make money while meeting new people they’d do it.”
Brian: “When travel returns–and it will– it will be about connections. We will show that connections are why people travel. People want to spend time with their family and friends. We just launched our first major ad campaign in five years. We created Flexible Dates. 40% of people are coming to us not knowing when or where they want to go. We’re seeing broader searches, including a week, a month, a weekend getaway. We’re seeing continued strong retention of users, and finding many new use-cases, like longer term stays, and people wanting to use their cars and stay.”
“Travel will look different. The biggest difference is flexibility. People are living more nomadically, and booking longer stays, and repeated weekends, or snow-birding. Also it’s life-change hosting, such as empty-nesters moving to hosting. The largest source of new hosts are former guests. “
On marketing: Brian; “We’re now doing our first major ad campaign in five years.” Dave; “Our marketing spend for 2020 will end up lower than for ’19.”
And moving forward? CFO Stephenson; “We expect to see 30% EBITDA margins or greater. We just don’t have enough visibility now to offer a profitability forecast.” And on summer travel; “A lot of people are booking closer to travel date.” That implies lower visibility, thus the lack of a profitability forecast.
Key statement. Brian: “Because people can work from home, that means they can work from any home. We think that will be a really big deal for us. Our brand is now a noun and a verb in our culture. We cut our marketing and our traffic is coming back. PR is the top of the funnel.”
On competition: “We are by far the most global brand in travel. When cross-border travel returns it’s going to be a really big opportunity for us. Fundamentally, we’re in a different space[unique]. 90% of our offering is from individuals, a lot of them professional. 70% of hosts leave reviews of guests. Hosts want to know.” Dave; “We’re no longer the alternative opportunity. We’re the default.”
How are hosts doing? Dave; “Hosts generate under $10,000 annually on average, at about a 17% occupancy rate.”
Focus 2021; “Educate the world about travel, recruit new hosts, simplify the process–for guests and hosts-to-be, and provide world-class service.”
Vivek Murthy’s the guy behind Airbnb’s “Five Step Enhanced cleaning process.” And why not, as he’s a former U.S. Surgeon General. What else? Dr. Murthy’s been playing nearly every position in Biden’s new health agenda. The doctor’s been part of the transition team too, co-leading the president’s coronavirus task force, and he’s currently facing appointment as either Health and Human Services Secretary, or again as Surgeon General. Jesus Christos.
Of course senate approval for any such position invariably includes a public cavity search. Dr. Murthy stepped ahead of that circus by revealing more than a million and a half in “consulting” income from Airbnb, Netflix, Carnival, and Estee Lauder. And why not? When you graduate both Harvard and Yale you realize that clean hands won’t pay the bills and questions can’t reveal any dirt when you’ve already offered it up openly. That’s what smart people do yo.
-The short technicals-
ABNB’s just now challenging its’ previous near-term high, a close at $216 with an intraday high of $219. Previous highs convert to resistance. 2. Circle. The stochastic oscillator’s value line(yellow) executes a bullish crossover of both smoothing moving averages(red and blue.) Following the crossover the value line kinks even more bullish. Very strong.
3. Circle. The Directional Movement Index’s D+ line(green) execute a bullish crossover of the D-(red.) The “D positive” line indicates buying pressure, while the “D negative” selling pressure. A rising D+ indicates increased buying, and the greater the separation between the D+ and D- the more bullish, with the D+ on top. The third line, the “ADX”(white), is a measure of strength. The higher it is, the more strength of the current condition. its’ low reading seen above indicates current weakness of the indicated condition.
ABNB’s public history is so short that it is just now beginning to display a 50-day simple moving average, visible in yellow below the candlesticks far right. The price-action clearly displays significant volatility, or “chop.” We see dip-buying opportunity in that chop. Classic dip-buying says wait for a drop to support, an up day, followed by another up day where trading opens above the previous close, and closes up. Were ABNB to have a longer price history, one could rely more on a classic bullish oscillator crossover, just like the one displayed above. Patience pays, in both creating a trade, or building a longer term position. “Flexibility” we say? Airbnb helps there as well with their new “Flexible Dates.”
The mind-bending magnificence of Amazon continues. Amazon sets the standard of success. Yet as a stock, it’s now less clear. Over the past year AMZN’s returned to shareholders 72%. Phenomenal for any $1.6T company. Yet over the past six months simply flip and chop that number; 72% to -2.7%. Were AMZN to double it would be a $3.2T enterprise. It likely will, but in how long? We still believe AMZN’s a core holding. We’re all Prime members, yet we don’t own it. Why mention it? It’s the standard of pure quality and growth. And Airbnb?
People love travel and most love adventures, big or little. It’s true. Travel will change a person. Often travel is a flight of fancy, and when connections between people or with places occur the entirety changes into magic. Brian Chesky understands. Airbnb now has more than two million listings for every one of the three air mattresses which served as the seed for what we know now. Is that growth?
It’s weird and foolish really. We feel kind of special simply being a tiny player in this journey. Stupid we know–but is it? Businesses aren’t faceless. Businesses are creations, each of a sort. Behind each are people, who impart them with their own flights of fancy. Chesky strikes us that way. His enthusiasm is brimming. He’s endearing, like a really knowledgeable kid excited about interest in his project. We feel we were listening to a creative founder, one who takes his company personally. We’ve learned to look closely when seeing that. Very few are those with a true viable vision and a relentless burning follow-through to see it happen. There’s only one Bezos thus one Amazon, one Musk and one Tesla.
Is ABNB a good stock? We think it’s a jewel just now beginning to sparkle. Is ABNB a good trade? Oh yeah. Is it expensive? We don’t care. Will it double? Repeatedly. ABNB’s Q4 posted a $10.84sh. loss, missing consensus by 18.4%. Cruel. But they had a note from a Fa King virus. Those Q4/FY2020 numbers were actually brilliant when viewed against a global lock-down, for a travel company. Fact. Q1, 2021 calls for a -$1.14 loss, with a high of -$0.43 and a low of -$1.48, out of a fat field of 22 analysts. And that may just happen. Any way you cut it moving from a $10 loss to a $1 loss is, well brilliant. And so is this phenomenon we know as a company. The reopening is what’s known as a real “catalyst,” serious pent-up demand about to break open. As we said, we already own ABNB. If we didn’t we’d buy it amen.
Airbnb Q4/FY2020 Shareholder Letter