As much as any company could net a win during the pandemic, Airbnb won.
In early March 2020, COVID-related lockdowns and travel restrictions swung down, cleaving away roughly 80% of Airbnb’s business, as nights booked on the platform plummeted. CEO Brian Chesky didn’t know when travel would come back—or what it would look like when it did. But he and his team moved quickly, laying off a quarter of Airbnb’s employees not even two months into the crisis.
It was one of the toughest times in the travel company’s 15-year history—but in surviving, Airbnb learned how to be lean. Over the course of the two-plus years of the pandemic, Airbnb shifted its focus from the activities-and-excursions-oriented “experiences” business and other alternative revenue streams back to the core of its operations: supporting guests and hosts. The company also seized upon growth opportunities as more customers testing the bounds of working from anywhere—framing Airbnb stays as a way to work-from-home-away-from-home. Oh and: The company went public in impressive fashion, commanding a valuation of more than $100 billion after an IPO in December 2020.
“We’re, I think, the most resilient, adaptable business in travel because we’re a network,” Chesky told Fortune during a video interview in May. “We’re a community, and communities are inherently resilient.”
Thanks to that resilience, Airbnb appears to have weathered the eye of the storm, sails intact. What’s more, its ability to thrive has seemingly settled a long-held debate over whether the company could compete, at scale, with traditional hotels. The pandemic changed many people’s relationship to travel, with more of them willing to consider a home stay, and Airbnb has maneuvered itself to benefit. There’s growing acceptance of the idea that a home-rental trip is simply a different experience from a hotel visit—with hotels and Airbnbs offering different use cases depending on customers’ desires for flexibility, service, novelty, or, yes, community.
This year, Airbnb joins the ranks of America’s largest companies, at No. 450 on the Fortune 500, operating at a scale it’s never seen. The company finished the year with $8.4 billion in revenue, up 40% from 2021. Bookings on the platform reached 394 million in 2022, well above the company’s pre-pandemic high of 327 million in 2019. Supply on the platform also skyrocketed in 2022, as Airbnb added 900,000 new listings to the platform.
Still there are economic headwinds on the horizon that could again curtail the business, even as Chesky and Airbnb look to deliver on shareholder expectations. And those expectations are high.
For investors, Airbnb’s great promise lies in being a company with little to no overhead: Unlike many hotel operators, it doesn’t own and doesn’t have to provide upkeep on its rental stock, which ostensibly means profitability in spades. “Shareholders were looking for a premium top line grower that had legitimate free cash flow, legitimate margins, and a pretty sustainable path towards meaningful margin expansion over the medium to long term,” Deutsche Bank analyst Lee Horowitz says. On that front, Airbnb has delivered: Free cash flow—money left after operating and capital expenditures—increased from negative $777.9 million in 2020 to $3.4 billion last year.
The company’s stock, however, has suffered recently, falling some 49% from its all-time high in February 2021. Shares recently took another hit following a first-quarter earnings report in May, in which Airbnb said that while nights booked on the platform had reached a record-high, the growth outlook was “unfavorable.” In its annual report a few months earlier, Airbnb had cautioned that swinging back into net losses was still a risk.
The biggest unknown facing Airbnb at the moment is how continued economic uncertainties might impact consumer spending. “You’re starting to see a situation where affordability matters more than ever,” Chesky says. “I think people love traveling more than ever, but even this is a discretionary expense. There’s definitely going to be some downward pressure on travel.”
Unlike the pandemic, of course, a potential recession is a crisis that can be prepared for. And Airbnb, a product of the 2008 Great Recession, is already tacking into these unsettled winds.
Going back to Great Recession roots
There are already signs that the company’s momentum is slowing. Year-over-year growth for nights and experiences booked on Airbnb have steadily slowed since the beginning of 2022, from 59% in the first quarter of last year to 19% in 2023 Q1. Some of this reflects the inevitable end of the post-pandemic boom, of course, but some could reflect consumers pulling back on travel. “You don’t necessarily have a ton of confidence as to where they’re going to go from here,” Horowitz says. “There’s bullish arguments to be made and there’s bearish arguments to be made, but it’s one of the big unknowns in the trajectory.”
But if a recession does strike, it won’t be Airbnb’s first. Somewhere amid the hype about $1,000-a-night ski chalet rentals, people forgot that Airbnb launched in 2008 as a way for cash-strapped 20-somethings, many of them adrift in a crashing economy, to nab a relatively cheap place to crash while traveling. The “air” in Airbnb is short for “air mattress,” and the first room the platform rented was the living room of a San Francisco apartment Chesky and co-founder and then-roommate Joe Gebbia were struggling to afford.
To cope with a looming downturn, the company is turning back to those roots. In early May, it unveiled a reimagined take on what was the original idea for the company: Airbnb Rooms. At an average of $67 a night across the world—compared to the average daily rate of $168 on Airbnb—guests would stay with a host in a spare room rather than rent an entire property.
Reintroducing Rooms at scale increases the potential supply for Airbnb listings, considering there are more people with extra rooms in their home than there are people with a spare ski lodge lying around. It also addresses growing consumer complaints about rising prices at Airbnb: Average rates in 2022, as reported by the company, were 35% to 40% higher than in 2019.
The future for Airbnb is about finding ways to bring down pricing in order to widen the funnel of potential customers, Horowitz says, and thus increase the number of nights booked. Having one of a kind treehouse rentals in Tahoe and castles in Spain is all well and good, but Airbnb’s future is dim if people are priced out of the unique vacations and visits that it touts.
Part of the equation, for example, involves capitalizing on Gen Z travelers, who don’t have a lot of disposable income but are becoming frequent travelers regardless. According to data research company Morning Consult, 52% of Gen Z adults took at least three leisure trips in 2022, on par with Millennials who are beginning to earn more. Those two demographics are more likely to be frequent travelers than Baby Boomers or Gen X.
In a recent interview with the Financial Times, Chesky zeroed in on the importance of staying price-relevant to young travelers. “I don’t want Airbnb to be like the symphony where young people don’t go to it and you age with the audience,” he said. “To be relevant to young people, we have to be affordable to young people.” Younger people are, in theory, also much more likely to be comfortable staying with someone else in their home, Horowitz says, so demographic trends work in Airbnb’s favor that way.
Fighting against financial anxiety
In the short run, demographics might lose out to macroeconomics. Deloitte, in its 2023 outlook on the travel industry, wrote that the year-over-year change in the percentage of global consumers planning to travel has basically been flat since September 2022, ending a long rebound. “The softening in demand that began in September could be the beginning of a lasting downshift,” the report read. “As health worries fade, significant challenges are coming to the fore: consumer financial anxiety, a labor shortage affecting all travel segments, climate change quandaries, and the likelihood that corporate travel may never return to pre-pandemic levels.”
So what do you do to offset those trends? Airbnb launched some 50 updates and features in May alongside the Airbnb Rooms investment. The company provided a litany of tools to help hosts better price listings and remain competitive, with the hope of preventing guests from feeling nickel-and-dimed by pesky fees and charges. Airbnb also rolled out its “total price” feature, which allows people to see the full price of a listing before they book.
Many of the recent changes to the platform were aimed at addressing concerns that users had with the service and had been voicing on social media—complaints about increasing prices, lists of chores hosts gave guests to do, and superfluous fees. While that discontent is real, Horowitz says that framing it as a threat to the business is overblown. Airbnb, in his view, simply has different use cases than hotels. And many complainers presumably would prefer to see Airbnb fix such glitches rather than take their chances with Hiltons and Holiday Inns.
The looming question is whether Airbnb has patched its sails enough to make it through the next bout of rough seas to come. Brian Chesky certainly believes it has—even if it doesn’t deliver the eye-popping growth of the post-COVID rebound.
“We’re really excited about the future. We’re working on things that aren’t shipping till next May and next November, we’re expanding the idea of Airbnb,” he says. “But we’re being responsible. We’re obsessing over every single detail. And I think these updates are going to make, I hope, a really big difference.”