Is ABNB Subject To The “UBER Disease”?

Yesterday Airbnb (NASDAQ:ABNB) reported earnings beating on revenues but missing badly on earnings and stock fell further in after-market trading.

ABNB beats revenues but stock sinks

ABNB has been a swan dive for months as the company which was once seen as the poster child for post pandemic recovery has lost the confidence of Wall Street and mom and pop investors. After rising to more than $200 in February the stocks has been on a one way trip to the cellar hitting a low of $135 in yesterday’s session.

What’s wrong? Why has ABNB been so out of favor with investors? Although the company is truly a dominant force in the hospitality and lodging sector with presence in more than 220 countries, investors are beginning to fear that competition may slow further growth and may make profitability an unattainable goal for the foreseeable future.

Investors fear a more competitive landscape

As we’ve noted in the past ABNB quickly carved out a massive market presence in the hospitality sector by employing regulatory arbitrage and an asset light model to offer consumers a plethora of choices at much lower prices than hotels. However that particular edge is starting to erode. In a bid to increase its profits the company has raised its fees which can combine to almost 100% markup over the stated price on its site. Travel forums are full of comments that a room advertised at $109 could in the end cost the traveller $200/night after all the ABNB fees are included. This makes the ABNB proposition far less compelling for travel parties of two or less who could stay in the safety, guaranteed comfort of a hotel brand rather than in someone’s house or apartment.

ABNB still offers an unquestionable value for families and large groups of travelers especially as its proposition almost always includes kitchen and laundry facilities in the cost of the price. But here too, the company now faces some new competition from Expedia's (NASDAQ:EXPE) VRBO brand that offers the same deal to travelers but has the advantage of many more properties in vacation locales such as beaches and mountain resorts. In a post COVID world these are much more coveted locations than the large inventory of urban core properties that ABNB offers.

Is the company vulnerable to the “UBER disease”?

The current problems in no way undermine the basic premise of the ABNB model. The company continues to be an extremely popular choice with travelers as evidenced by its massive $10 billion revenue gain in Q1 of this year which still saw many locations around the world in the lockdown mode. There is no doubt that ABNB will continue to see its booking revenues grow at an impressive rate as the year proceeds and more and more consumers begin to travel for both business and pleasure. But the company may be trapped in the “UBER model” as it offers tremendous scale to the market but no ability to convert that revenue growth into profits as marketing and administrative fees continue to weigh on margins. The stock remains wildly overvalued and like all story stocks can only remain at these levels if it can maintain stratospheric growth rates. The next few quarters will show just how well the company can perform in the new, more competitive landscape and will determine if its stock can rebound or sink below the $100 level.