Chit Chat Stocks - Airbnb's Past, Present, and Future With Speedwell Research (Ticker: ABNB)

Episode Date: May 14, 2025

On this episode of Chit Chat Stocks, Brett and Ryan speak with Drew Cohen of Speedwell Research about the future of Airbnb (ticker: ABNB). We discuss: (06:31) Understanding Airbnb's Business Model and Take Rate (09:05) Growth Opportunities: Short, Medium, and Long-Term (17:41) Speculative Future: The Super App Concept (23:36) Competitive Landscape: Airbnb vs. Booking and Expedia (27:54) Understanding Booking's Business Model (34:03) The Super App Concept and Its Challenges (41:31) Valuation Insights and Margin Expansion Potential (45:36) The Importance of Leadership and Design in Airbnb (48:35) Potential Risks and Future Challenges for Airbnb ***************************************************** JOIN OUR NEWSLETTER AND FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* FinChat.io is the complete stock research platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠finchat.io/chitchat  ********************************************************************* Bluechippers Club is a tight-knit community of stock focused investors. Members share ideas, participate in weekly calls, and compete in portfolio competitions. To join, go to ⁠Blue Chippers and apply! Link: ⁠https://bluechippersclub.com/ ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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episode. Welcome into another edition of the Chitchat Stocks podcast. My name is Brett Schaefer, joined as always by Ryan Henderson and with his special location today with the giant fish in the background making the appearance once a year. We have a recurring guest, Drew from Speedwell Research, a stock research website, an investing research website that does high quality research on stocks with comprehensive research reports and companies we've covered before on the show, such as Coupang, Evolution AB, and most recently, Airbnb, which is the topic of today's episode. So Drew, welcome back to the show. Most people are aware of Airbnb. They know the brand, they've maybe used the service before, but can you explain to listeners where does the business

stand today. Yeah. And thank you for having me on. So most people have heard of Airbnb for a lot of their history. They kind of were a poster child of money losing VC funded internet company. And you really kind of see that at its pinnacle in 2019, where they're losing over a billion and a half in operating income. And this is while they're growing revenues very rapidly. And there's a lot of questions around what is their profitability ultimately going to be? And it's pretty interesting too, because as we think of Brian Chesky, who's been the CEO and a founder of Airbnb, who's been leading the company since its founding, since 2009 almost. And the thing that we saw with him was at that point, he kind of had this premonition that

the company he was running was not really the company he wanted to run. And they kind of were nearing an IPO. And it's almost similar a little bit to Bomb Kim and Coupang. We've talked about that before, where right before the IPO, he decides to change the business. Brian Chesky doesn't do anything that extreme. But what he does is COVID hits and he takes that as an opportunity to totally streamline the business. They had all these multiple different departments for marketing, for operations, for support. And he decides to simplify the business a lot, get rid of multiple layers. And that's where we really see this business start to improve. And it showed up in the numbers. So they went from losing a billion and a half in 2019.

This last year, they're now earning two and a half billion in EBIT. We see that revenues have continued to grow. Gross bookings have continued to grow. They've now surpassed over 80 billion. This is still only half of what booking's doing, but they are still catching up, still growing and all that. And so that is kind of where they are today. They're at this point where they feel like their core business is in a strong position. Over the last couple of years, there's a lot of complaints that on the site, they're not showing pricing very clearly. Okay, they've addressed that with a toggle. You can see the total price. It includes cleaning fees, all those hidden fees, everything. Other complaints on search, it's too hard to find stuff. Okay, they've done stuff around

inspiring someone. So now it's no longer about just booking a room, but helping someone find the sort of room that they want to take. It sort of is taking on a little bit of this demand generating function as well. All sorts of stuff with organizing things within different categories, cabins, beaches, dome homes, all of that, all sorts of things within the checkout process, payments improvements. And so really addressing a lot of these sort of little frictions that a consumer may have when they are booking an Airbnb. And he's on Twitter always asking, what are some of the issues people see with the site? And he had this very long tweet thread a year and a half or so ago where he talked about the 50 plus things they change in response to

customer feedback. And so they've done a lot of this reiteration. They feel like their core platform is now pretty strong. And with this kind of strength now where... And when I say the core platform, what I'm really talking about is the US business, the Canada business, the Australia business, the UK and the France business. Everything else is kind of still more in its nascency, even international. And so with that kind of in a more solid footing, they're starting to progress more into international. And then also these other new services that they've been teasing about. We're going to talk about a lot of that today, geographic expansion, the product release, which I should say as a disclosure, disclaimer for the listeners that you have a big

product release coming the day before that we are releasing this episode. So they've talked a bit about what they're going to do. And Drew in his research report, maybe I don't know if there's other people that worked on it. The Speedwell team during their research report had some great insights on what these products could be. But for any listener that's saying, hey, you're not talking about this crazy new product they launched yesterday. That's because we're recording it before May 13th. But before we get into the long term growth trajectory, international financials. Let's break down how the take rate works with hosts and guests. You had a good breakdown in the report about if you have $100 spent, what goes where and how that relates to

their business model. Yeah. As you noted, we do have an in-depth research report on this that you can find at speedwellresearch.com. So the take rate, very simply put, that's going to be revenue over gross booking value. Now, when you're calculating the take rate, the thing to keep in mind is the sort of timing differences between revenue and booking. Now, all of this kind of washes out over the long term. And if you're looking at an annual basis, but if you're looking at a quarterly figure, it really distorts the numbers. And so I would kind of advise against really looking at the quarterly take rate, unless you're just comparing it seasonally to last year's quarter. Because what ends up happening is that when a room is booked, it goes into the bookings

but it doesn't get recorded into revenue until the person actually arrives. And so there's lots of seasonality and travel. And so that's impacting the take rate. So let's put that aside. Let's zoom out. The take rate, it's very simple. They charge hosts basically a 3% fee. And then all of the other fees are layered onto the guest side, which can range anywhere, usually from 6% to 12%. They have this sort of algorithm and they don't really tell you too much about it on how they're figuring it out exactly what those number is, but it has something to do with proximity. There's discounts for longer term stay. And so we don't know everything that goes into it. Price point is also a part of what impacts it. And so on average though, you're

looking at roughly a 13 to 14% take rate. And so again, 3% of that is on the host side and then the rest of it is being burdened on the guest. Now, a lot of times when people go to checkout, they see the sort of cleaning fee. That is not Airbnb charging that. That is the host charging that, Airbnb will now take a take rate on it, but it is not a fee that Airbnb is charging. And so that is just kind of high level how to think about that. And so if you're kind of wrapping that up, what that means is they have 84 billion in gross booking value, about 11.2 billion in revenues. And so that'll get us to their current take rate. Okay. And in your report, you outlined the short, medium, and long-term areas where Airbnb can grow. Let's go through these. What

do you see as the different opportunities by time duration? Yeah. So to kind of pick up where we started this discussion about them improving the core. So Brian Chesky talks a lot about how there's nine hotel rooms that are booked for every one hotel for every one night that's booked in an Airbnb. And he says, all we do is need to get one more of these nine nights and we are doubling our core business. Now, the biggest kind of friction he sees to them being able to accomplish that is that Airbnbs currently do not have the same sort of reliability and consistency that you come to expect out of a hotel. And so a lot of initiatives have been around trying to improve Airbnbs. So they are at least at this sort of experience level you would get at a hotel.

And so the way they've done that in practice is basically they've rolled out guest favorites, which means that once a guest stays there, they really like it. It gets highly rated, it gets boosted in the search rankings, and it gets a special badge. People now know if they're booking those that they've kind of been stayed at enough that you can expect there to not really be a problem with checking in. It's not some sort of weird issue with the rooms, the homes, the towels, whatever it is. And so that is the way they're trying to improve the consistency of their experience. And they're hoping that that will help them grow sort of the core business. And so that short term is just really growing these five markets I mentioned before, US, UK, Australia,

France, Canada. That's the core business. We're going to unlock more of that GBV by continuing to increase consistency. And just so listeners know, that right now is about three quarters of their total business. It's just in those five countries. And so they're still focused on improving that. But then we get to the second factor, which is sort of midterm growth. And that really has to do more around international growth. And so there's a lot of markets where Airbnb exist. People know them, but they're just not that big. The penetration is nowhere near what you are observing in the US. The US on its own is about 45, a little under 50% of their total business. And so there's a lot of room to grow in all of these international markets. And they talk

about these four big markets in Asia, among which are India, China, Japan, and Korea. And then they also talk about wanting to grow more in Spain, Italy, and Germany. And then they also talk about in Latin America, Brazil, and Mexico in specific. Brazil most recently has actually been one of their stronger growth markets. And so they're focusing on growing these international. What that actually means in practice though, is that they have to localize the offering to each market. And so one example of that is in Brazil, for example, they just rolled out PIX, which is sort of a Brazilian native payment platform that a lot of people use. And since they rolled that out, they saw much higher transactions going on through the platform. There's all sorts of

little things like that that they have to do in every market before they could really see it continue to grow. In addition to, of course, going out, throwing a lot of events to attract hosts, because if you remember, a lot of Airbnb starts out where hosts actually are offering their room to someone else. Someone comes in as a guest. They like the experience. They decide to host their room as well. And so that's also kind of, if we get into later, some of the differences of Airbnb versus other models, they're the only one that still has that kind of hosting aspect to them, which even if it's not that popular, it still is an important acquisition engine. It's also important to sort of set them apart in terms of branding. And so those are the midterm

growth factors. And then we're getting to longer term growth, and that is going to be these new sorts of businesses. Now, the first one they've already teased and actually announced is Experiences. They've been working on this for basically, call it a little under a decade since it first kind of was teased. They've launched it already. You could go on their site for the past several years. You could click experiences tabs. You could book them. There's just not a lot there. It hasn't been a big focus. As I mentioned earlier, they really made their focus on improving the core business before they put more of their resources and attention into these sort of ancillary opportunities. And so what they've said so far on this is experiences, basically,

if you think about you're booking a trip, you're going in, you're booking it, then you're done, right? But there's maybe seven other days that you're there. What are you going to be doing there. So the ideas, experiences is going to help fulfill all that other time you're there. And they want to make it much more idiosyncratic, the same sort of Airbnb flair to when you're booking some sort of traveling tour. It's not this mass market tour of 200 people with someone holding an umbrella and you're just following them around. It's not this big food tour with a big mob of people walking through these streets and you can't even hear the person up front. Instead, it's, oh, the local baker brought you in and they're showing you how they make the bread every morning.

Oh, it's this art student who loves art and they're going to personally take you around. Oh, you could do a wine tasting tour, a bike ride, whatever it is. It's kind of locals offering these experiences. And so that is kind of just the base level of experiences. It's always been talked about in terms of travel and things that people can do when they're traveling. Now we're going to get into a little bit more of the speculative area where we think about what this can mean in the future. And so what they've said, and this is so this is not speculative. What they've said is once you're offering these sort of services, you could basically offer other services as well.

There's many things you could plug and play into there. They talked about how when Amazon was building their marketplace, they didn't build it to just sell CDs. They built it to sell anything. And that is where they kind of talk about how they could take this platform. And they actually specifically said in this last press release that they re-architected a lot of their platform to make it much more flexible for these other sort of offerings. And so now the question is, why just sell these to tourists? Why just sell them to people traveling? If you have all these local services, you maybe only travel two weeks out of the year. Guess what? You're

home for another 50 weeks. That's a much bigger opportunity. Why not just sell these sort of activities to people who are local? And now this is where it gets a little speculative. If you think about this local services area, there's really not someone who's catering to it very well. Yelp is the leader here and they've done pretty poorly. Google Reviews has tried to wedge their way into that. But there's not a great way to really start a search if you're trying to say, inspire me of things I can do in my city. Maybe people go to Instagram to search or TikTok. Maybe you try Google and you pull up infatuation or some web article, but there's not really a great way to do this. In contrast, if you're looking at in China, for instance,

with Meituan, who acquired Dnping, which is sort of their version of Yelp, it's much more integrated of an offering, much more ability to sort of explore different potentials of what to do in your local city. The local services sort of aspect of it hasn't been really relegated as it has in the case of Yelp, which is really not innovated much. It's really the best, only way you can look for things, local businesses, restaurants, and all that, except it's really hasn't been innovating that well. And there's still a lot of, it leaves a lot that you could want to do. You know, the search doesn't work that well. It doesn't really push you any sort of discovery or inspiration. And so I think one of the areas where they could go is offering these same sort of

services to people who are local. And then you're starting to touch on more of the super app stuff, which we could get to in a second. But I think the less speculative things that they've talked about kind of wanting to do is, okay, you're an Airbnb homeowner. All right, guess what? Maybe it'd be pretty cool to have groceries in the fridge. Okay. Well, you could hire someone on this app to go ahead and buy you groceries. Okay. You want a better interior designer. You think it's going to help you book the room. You could find an interior designer through the platform. They'll help you design. Maybe your toilet's clogged. Okay. We'll hire a plumber. Maybe you need new air conditioning. Let's hire someone for HVAC. And so all of these sort of tangential home

related services is where they kind of talked about starting. And you actually saw that already, you know, very broadly the past couple of quarters where they rolled out something called a home sharing, which is, or host sharing, which is basically, if you don't want to host your own home, let's say you own a vacation home, it's vacant. You can actually hire someone on their platform to host it for you. Okay. Well, if you're hiring that person to go to your home and do something, why can't you hire them to, you know, do something else for you? Why can't you hire a plumber to be there? Or since, you know, I gave some other examples. And so that is kind of the beginning steps. And a lot of these services too, can help close the gap between them and hotels

where you think in hotels, you can get room service, you could get a massage, you could get a maid. Okay. That'd be pretty cool. If now you have the platform that can help connect a third party maid services to someone who's staying at an Airbnb, boom, now you got maid service in a scalable way. And so those are the less speculative ones. And then we could speculate a little bit more about the super app, but I just talk nonstop. So I'll pause for a second. Yeah. I want to hit super app. I know that is speculative for the value investor listeners out there. Don't roll your eyes too much. It's not going to impact the financials for a while here. But one thing I want to hit back on is the medium term growth one. And for listeners that maybe missed it,

70% to 75% of their existing business is, again, that US, Canada, Australia, UK, and France. When I think about that, it seems like we're missing a ton of large travel countries, Mexico, Spain, Italy, Japan, Brazil. I can't remember if you quantified this in the report, but how big of an opportunity is that maybe compared to someone like booking who has a much larger share in those type of countries for Airbnb? be? And can they, again, get to the same, quote unquote, market share of the travel lodging market as they have in the US and a place like Spain or Japan? Yeah. The short answer is that it's such a large TAM. It almost doesn't even make sense to try to quantify it. You're talking about multiple trillions in amounts of money people spend on travel. And so they have 80 billion in GBV right now. Booking is a little more than double that, 170 call it. Expedia is also a little bigger than

Airbnb, call it 110, 120, somewhere around there. So there's a lot of room to grow. And then there's also the fact that they create travel demand in a way. And you saw this very saliently during COVID where no one really before that was booking a place to stay for six weeks. And that was a new thing, but it was a new thing that was only enabled by Airbnb. No one was going to do that and stay in a hotel. They were going to do that because they could rent out, you know, a whole house or some whole house somewhere. And that was kind of a new sort of travel. And they talked about that at the time, how these long stays, which they defined as stays over 28 days were increasing for a while. And so there is an aspect of this where Airbnb is also growing the travel

Tam, because there's a lot of sort of trips that maybe you're willing to take just because it's, you know, a cool location, a cool home. Oh, maybe we wouldn't have brought the whole family there, but if we could get a house, then it makes sense. Those sort of trips and things that you're willing to do that maybe you wouldn't have done if it was just a hotel and also different places you're staying. And that kind of loops back to what I was saying earlier about how Airbnb is trying to take on a little bit of this demand generation function where it's not just about kind of knowing where you want to travel to book a room. It's about inspiring someone on the trip they can have. Okay. A couple of thoughts here. First off, sort of the short-term opportunity

and way that they can grow. You mentioned some of these kind of minor user experience tweaks that they are making to improve the platform. And we talked about, if you read the latest conference call, he talks about it a lot where it's sort of their bread and butter. And I think what a lot of people know Airbnb for is having a more affordable stay that's differentiated relative to a traditional hotel. And he kind of talked about COVID getting away from that a little bit because we saw the average daily rate jumps significantly. And instead of any sort of drawing a hard line or encouraging hosts to take down price or anything like that, they're making all these minor user experience tweaks where it's like displaying the full price um giving preferential

treatment to guest favorites with like preferred rely or better reliability that kind of stuff i really like that on the flip side the long term the super app which i know is like almost a bad word to some value investors do you think there's any risk that they're making the same mistake twice here where they were kind of trying to go after some of these angles in 2020 and they ended up pulling back and it was very good for margins and and we saw the benefits of that over the last four or five years do you worry at all about lack of focus happening again yeah um it's interesting because if you think about it you basically want a business that experiments and tries new things because that's required for innovation, but that tends to also come at the cost of efficiency.

And one of the problems with Airbnb, if you were rewinding to 2019, 2020, was they were experimenting a lot, but they also lacked a lot of efficiency. And I would say though, the sort of experimentation they were doing was, I don't know if frivolous is the right word, but it was kind of wasteful. It wasn't very direct. It wasn't very clear what you were trying to experiment on. It was rather just a lot of wasted resources kind of going into the blow to the system. And so the thing that they really focused on when they're talking about becoming a more efficient platform is really streamlining a lot of things, getting rid of these multiple layers of bureaucracy, redundant departments, redundant ad spend, all of that sort

of stuff. But there is an aspect where you're right that anytime you're launching, they're talking about launching multiple billion dollar businesses a year, it is kind of hard to say, does that come at the cost of focus? I think so. Can they do both? Probably. But there is an aspect of it where you are definitely trading off the focus for this other experimentation, but there's also potential upside in that. They originally were focused very much on just sharing rooms, not even whole home and all of that. And so to some extent, you could say, well, going to the whole home rental, they weren't sure people would do that. And that was an experiment worth having. And that turned out to be the majority of their business now.

And so some of these experiments you take, they do bring fruits that make it very much worth it. But I think there's always sort of this trade-off between efficiency and focus. Let's shift gears a bit to the competitive landscape. A couple of questions here. So first off, what do you think gives them a competitive edge over, I guess, the biggest peers here are Booking and Expedia? And maybe you could talk about the competitive position against hotels as well.

And then the second question, my follow-up will be – and I get this all the time and I honestly don't have a great answer to it. But why own Airbnb over Booking Holdings when we're seeing booking is growing – it's gross bookings faster and it trades at a cheaper – I believe operating cash flow multiple if that's the figure you want to use. So what's, I guess, what's the appeal? What do you think the long-term upside is of Airbnb versus some of its competitors? All right, folks, if you are a regular listener to Chit Chat Stocks, then you know that we use FinChat.io daily. FinChat is the complete financial data platform for stock-focused investors. They have robust financial data on more than 100,000 stocks globally, including company-specific

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All new users automatically get two weeks of FinChat Pro for free. But if you want to extend to any paid plans, our link will get you 15% off. That is FinChat.io slash chitchat. link will be in the show notes. Yeah. So let's talk about these businesses. So Airbnb booking and Expedia's VRBO are all kind of broadly in this alternative accommodation area. And that is basically any sort of place you could stay that is not a hotel. And so Airbnb, we kind of all know what that is. Those are people's homes, but you can also stay in individual rooms. You could rent out a room with the host. And that is sort of a unique offering to Airbnb. That may not be their

most popular offering. It's certainly still used. But the important thing with that is it becomes this sort of customer acquisition engine whereby people who stay as a guest in these other homes ultimately very often end up also becoming host. And so that is one unique way they're kind of acquiring supply. And so if you're looking at Airbnb supply versus sort of the competitors, they have about 8 million listings and about 50 to 60% of them are solely listed on Airbnb. Now let's back up a little bit though. So you have Booking. Booking does have their alternative accommodation business. A lot of these alternative accommodations are professionally managed. And so what that means is that there's a property manager

who manages maybe a hundred, maybe a thousand of these units. It could be multiple apartments in the same complex. They make sure they all look very similar. They furnish them, they clean them. And some people really like that because it does have more reliability, more consistency, but it also means that it's more cookie cutter. And a lot of these places kind of lack the sort of idiosyncrasies, a little bit of the flair, a lot of these unique Airbnb places have. And so there's no real aspect of someone going to booking and staying in a place just because they like it. Whereas it is kind of common for someone to just browse Airbnb, think that there's some places that look cool and not even have a specific destination in mind because they're

really picking the home rather than the place. And so that is kind of a unique behavior to Airbnb. Whereas if you're going to booking, you're really just booking a place because you need a place to stay when you travel. It's not about actually spawning that desire to travel in the first place. And so that's fine though. They do have a big alternative accommodation business. In terms of take rates, it's pretty similar. One kind of difference though, is that Airbnb is a lot easier to use and it's a lot easier on the host side as well. And so if you are kind of a casual host, you're just looking to make some ancillary income, you're very likely to only want to host your place onto one platform. And that's because of all the complexity that starts to

FOMET once you're cross-listing your apartment or property, because then you have to manage your calendar, you have different payments coming in, you want to make sure you don't mess up the dates. And so the people who just want a very easy place to sort of list their apartment or home, they go to Airbnb. Booking, in contrast, as I mentioned, they're going for the property managers. VBRO is very similar. They have more homes though than apartments, and they're also more US-based, whereas booking

is more European and international-based. Now, the big part of Booking's business, though, is basically helping a lot of boutique hotels. There's tens of thousands of them, and they help them find people, help them find customers, basically. And so they do this sort of arbitrage very well, where someone goes to Google search, I'm looking for a place to stay in the south of France, and Booking comes up and Booking has all these options. As a consumer's perspective, you want to compare multiple options instead of going to just some random boutiques hotel that you maybe never heard of. But if you see it on booking and you're comparing it next to all these other ones, then you're more likely to go ahead and actually

make that transaction. Now, something important to note in booking's business model is they have these two sort of different transaction models, something called merchant and another sort of model called agency. Under merchant model, they actually buy these big blocks of hotel rooms and they'll get a discount on them. And then they are responsible for selling all of those. Whereas in an agency model, they're just kind of passing through. If it happens to get a sale, happen to get a booking, then we'll go ahead and pass that through for the hotel and book it on their behalf. And so that's kind of important to note because a lot of hotels may not actually like the agency model because it sort of gives booking the ability to kind of cut them out

and compress them. But then on the merchant model, they like the fact that they're taking up a lot of their hotels, but then they're making less money. And so Booking's always kind of had a bit of contention with their supplier base. And so that's one aspect. But I think the big thing to note there is that they're getting a lot of this demand, not because people are going to Booking to search, but because Booking spends over $5 billion a year in Google search. And so when you're searching for them, you're searching for a hotel, you happen to go to Google search, to Google, and then you're landing on booking. And that sort of difference does mean that there's a risk in their model that if they aren't able to effectively get this sort of performance

advertising, then they could lose a good amount of their traffic and become irrelevant. And so that risk is unique only to booking. It's not actually a risk to Airbnb because over 90% their traffic comes organic. So that's kind of one difference worth pointing out. But in terms of your second question, why not just own booking versus Airbnb? you can, you can own either, you can own both, you can own neither. Um, I think it's a very different sort of opportunity set. I think if you were to ask me, you know, how much value does booking add to how much value does booking add? It's tricky because in the one sense, when you are, you know, helping people generate demand, fill up the rooms and all that, that is

real value. You're helping customer find hotels they wouldn't otherwise. And so you are, you know, providing value, but you're also kind of this intermediary in the chain that I don't think it's an imminent risk, but it just does feel like if you're saying 20 years from now, is booking still going to be relevant versus Airbnb? I think there's a much higher chance Airbnb is because the sort of preferences that Airbnb are fulfilling, they're not fulfilled by anything else anywhere else. There's nowhere else you could get the same breadth of listings. You could get the hosting offering. It's also the trust that Airbnb allays, whereas no one's really heard of booking. But that could also change in the future. And so to your point as to why pick one

versus the other, it's just sort of different risks that you're accepting. You have this weird sort of Google search risk with booking. You also have the fact that maybe there's someone else who can aggregate all of these hotels. There's a lot that could change in search. This is a risk that kind of exists broadly for any sort of marketplace is what happens when an AI agent is searching the marketplace rather it being the individual that could kind of change things because what if all of these uh hotel owners they have websites up there and now it's an AI agent searching on your behalf the entire web why does it doesn't need booking to catalog them on their behalf or did it just go through the whole web and pull out uh from you know organically from this hostels

websites, different places they could stay. Whereas Airbnb, these are places that are only listed on their website. Airbnb also doesn't have sponsored listing revenue, which means that if you aren't necessarily profiting from someone searching and then clicking on that search item. And so if there was this sort of weird AI agent world, which I know is a little far-fetched to think about now, a lot of that sponsored revenue could be at risk. And so it's just a different reset. You know, there's much more optionality in Airbnb too, with a lot of their new business offerings, you know, international growth and all that. But booking is a great business. I don't want to say anything otherwise. They just don't have much of a brand, you know, comparatively

to Airbnb. And then real quick, I'll just hit on Expedia. If you're looking at Expedia, they've been pretty poorly run for a very long time. They've acquired a lot of these different businesses, try to stitch them together. More recently, just in the past couple of years, they've been unifying their brands. And so that's actually been very helpful for them. Even though booking is growing much more and much more successful, they actually spend less on marketing than Expedia does. They spend about 40% of revenues on marketing, whereas Expedia is at over 50. And just for comparison, Airbnb is like high teens. And so Expedia has had to do a lot of catching up to do. They've done pretty well though more recently, but it's still just a different offering. It's

sort of similar to booking where there are these sterile homes that you go to. It's very much property management um operated a lot fewer individual hosts uh no sort of shared home offering uh but you know that they're still a good business they're still you know definitely weighing on airbnb's growth and all of that uh but it's just sort of different they're all going to grow though yeah anyone that watched college football last year knows vrbo or verbo spends a lot of marketing uh don't know if i've ever used it though before we get to the financials Let's bring back the super app concept. And I mentioned before, I think we didn't hit on it.

What are your thoughts there? What have they said about it? What would this even look like? So if you think about what a super app does is it basically starts by attracting users and then it tries to funnel them into different offerings. And the way at its best it attracts users is by having an essential offering that is high frequency. And the central is important so they don't leave. And the high frequency is important, not just so that they build a habit, but so that you have a lot of

opportunity to cross sell something. The problem Airbnb has is travel is pretty infrequent. And the time that they use their app is also pretty infrequent, maybe at booking and at check-in, and that's about it. And as a result of that, they're trying to figure out how to get more sort of app downloads and app usage. So app downloads has been a focus because that's going to be your customer touchpoint for any of these sort of offerings. So you need to get them to get the app. And then they're trying to increase usage. They can't do that much though, as long as it's still an infrequent travel offering. And so they've done stuff like talked about having more sort of activities during the trip. That's part of what experience is going to do. They

talked about having AI support help and AI chat to not just help if there's something wrong with the property, but also to help book stuff, help kind of be an itinerary, a travel buddy, that sort of thing. So that's all about increasing usage. That's probably not going to get them far enough though. If you think about what the really successful super apps are and WeChat in China, that's really the poster child. They built everything off of messaging. And so a messaging app, you're opening more than a dozen times a day. So very high frequency. Once you get all your friends, contacts, and all that. It's essential. It's an essential service. And so people would go to that very often. It was very easy to sort of insert other stuff within that

app. And so that's one that worked well. One that worked less well is Grab, where they're tying ride hailing to food delivery, food delivery to financial services. It's kind of working, but at the same time, you don't have much loyalty to any of those. And so bundling together a lot of low loyalty products helps a little bit, but not enough. And so you need that sort of foundation. And so that I see as being the biggest sort of barrier to Airbnb being able to create an app. Now, what they have going for them though, is they have a lot of real user IDs, real user logins, and payment information. And also they have trust. So when you're staying at an Airbnb, you are going in person. So someone knows you're a real person. It's sort of a real name

verification, a real name account, and then payment info. And so all of that is sort of key to being able to sell anything else frictionlessly. Once you have all of that in there, then it's a lot easier to say, go ahead and buy XYZ from us. And so that's one thing they have going for them. In terms of what they may actually try to do with this, I think you have the travel offering. You can try to layer in experiences. That could be a higher frequency sort of thing because maybe you're booking an activity in your city once a month or maybe more. if you can move to local services, then that's more like what Meituan did in China. And so Meituan, for those that don't know, that's a food delivery service. And I love this because CEO and

founder Wang Xing was actually explicit about tying high frequency, low margin service, which is food delivery to something that is a higher margin, but lower frequency, which is travel. And so Meituan was actually kind of doing the opposite. They use this food delivery service they had to cross sell travel. Now Airbnb is stuck with travel and they need to figure out how to get more usage on the app. And so they're going to need to figure out something. Maybe it is local services. I kind of would speculate they really should just buy Yelp because it's only one year of free cashflow for them. It has a lot of usage. They would get that whole repository of local services and that could be something to kind of kickstart all of their experiences.

They get reviews and all of that. And so that's one way they could go, but they need to basically build a lot more activity and usage and get people in their app before they could cross sell anything because it's very hard to do otherwise, because you're not going to go and think Airbnb to book a cleaning maid for your apartment. And so that's the sort of thing that they need to think about. How are they going to be able to do that? Having said that, there is very much a sort of latent opportunity to do local service as well. Because right now, if you do want to book a maid for your apartment, you go to Google, you go to Yelp, you're looking up these different offerings. I know there's some startups, but none of them are that big. And so to have one big,

well-known trusted brand that all of these different house cleaners are under, and you could rate them and just pick one, that would be a much better offering from a consumer perspective. So there's definitely a need for what they're trying to go after. And they could do this for anything, which is what they've said. There's anything we could sell once we build this. It It could be for plumbers, for home repairs, for designers, for whatever service you want. And it could be language lessons, and that has sort of a travel tie and education, lots of stuff you could do with that. And so that would be kind of a cool place for them to go.

And as a user, I think it fulfills a need, which is in contrast to a lot of times when you hear people talk about wanting to build a super app, it's not because people actually want them to build a super app. It's because their business is struggling and they need to figure out a way to make it struggle less. And so when Uber was tying together ride hailing with food delivery, it wasn't because consumers were saying, I really want to use one app for both of these. It was because Uber was saying, well, you know, we need to figure out how to cross seed

traffic to food delivery. We have this one asset. How do we, and it wasn't, it didn't do that much from the user perspective. You know, once they bundled it all together with Uber one, there's a little bit of a benefit now. But prior to that, it really didn't do much in terms of value added to the consumer. And you see that with X too, where they talk about being a super rep. At one point, they said they wanted an insane, I forget if it was 100 billion or a trillion amount of transactions done on the platform. The problem with that is, once again, what is the user getting from that? The user

doesn't benefit from going to X to make a transaction. They're quite happy doing it through Shopify, through Instagram, through other sort of venues, which actually add value. Whereas the thing that's kind of different here, and I think the opportunity Airbnb has is, again, a lot of these local services have not been catered to well. There is an opportunity to sort of do service as well. All right, folks. Before we move on, we want to talk about Blue Chippers Club. Blue Chippers Club was started by two friends of ours with the goal of building a tight-knit community of stock-focused investors. Inside this community, everyone gets to share and break down their portfolios, pitch stocks, receive feedback, and even participate in weekly calls.

I truly love this idea, and it's why we're promoting it here on the show. I join the calls pretty much every week, and it's phenomenal for generating new ideas and receiving feedback from other like-minded investors. If you're interested in joining, head on over to bluechippersclub.com and hit apply. That's bluechippersclub.com. The link will be in the description. Okay. I'm going to use this question as sort of the Trojan horse to talk about valuation. But one thing I noticed in your report is you outline major margin expansion potential for Airbnb. Now, what gives you the confidence they can reach 40% operating margins? And how does that relate to the way you're valuing the stock, modeling it, doing a DCF, however you want about it? Yeah. So the short answer is whenever you're making a mature margin assumption, you don't know. And so that's the honest answer. You look at comps, you look at peers, you know that it's

a marketplace and other marketplaces have been able to achieve that if not higher. I think one of the highest sort of margins you could see for an internet enabled business is Facebook is 50% plus. And so, okay, they're not going to be quite at that scale. And you could layer in a little bit more ops expenses and all that. And it gets you down to 40. There's other sort of marketplace businesses that have operated in that kind of near-term vicinity. You could look at the actual P&L and try to figure out, okay, well, let's say that they cut S&M down because what would that look like? Do they need to continue to grow R&D as a percent of revenue or could you get some leverage there? And you could do that sort of math and get to 40. Ultimately, that is going to come

down to the investor's judgment and what they want to assume. If you are comfortable though, assuming a 40% sort of mature margin, and again, there's no reason why they shouldn't be able to get that, just to kind of give that a little bit of a defense, because you're talking about an internet enabled platform where there's very little incremental costs associated with any sort of additional booking. On top of that, you don't need a lot more support. And actually, this is going to be even more true with AI. They've talked about how they're using AI to help actually cut some of the support needs. And so if you are able to achieve that 40% mature margin, you're looking at like 20 times mature margin earnings, roughly somewhere around there. Or if you want to look at

actual free cash flow today, it's a little bit more like 34 times. I will caution though, I always will make two adjustments for Airbnb. One, I'm backing out stock-based comp. So I'm not allowing them to... So I'm basically treating it as a cash expense. The second thing, and this is important and take note, since they do have $8.5 billion in net cash, they have a lot of interest income coming off of that. And I'm not even talking about the other $5 or $6 billion in cash they're holding on behalf of guests. There's some more interest income there. I would not want to put that same sort of multiple on that as I would their core business. And so I would think you should make that adjustment because otherwise, if you don't make that adjustment, you're sort

of implying that they're just buying deposits and holding cash is worth 20 times, whereas you're not growing, obviously, and at risk it goes down and it's not their core business. And so instead, I think you should back that out and then you could back the cash out of the market cap to get the EV. So that's roughly 34 times. We do a reverse DCF where you could see explicitly what assumptions would get different returns. Because your question you're asking me is, how do you know they'll get to 40%? I think they will. I don't know is the answer. And so I want to sensitize around different sort of variables to see what does it look like if they only do 25% margins? What does it look like if they do 50? And then what does sort of different revenue growth

rates look and mean for different returns? And when you do the reverse DCF, you start with an assumption and the output is the discount rate. And that's sort of your return you would get as an investor, it's a little theoretical, but it's a pretty good way to do it. The theoretical part is it assumes all cash flows are returned back to the investor. But as long as you're assuming they're not horrible at capital allocation, that is basically at least true. And if you think they are bad at capital allocation, then you shouldn't own that business anyway. And so then you could see sort of the returns that you get associated with that. We just updated it in our last earnings update, which you can find on speedwallresearch.com. And they are returning some cash to

shareholders through buybacks as well. We'll talk about that, I guess, as we address management. So there are obviously some businesses that can run pretty similarly with or without a founder at the helm. In this case, we do have an owner-operator founder as the CEO and Brian Chesky. I guess overall, how important is he? What do you think of Brian Chesky? are there any concerns and then thoughts on his capital allocation skills yeah i think he's very important to the company i think that anytime you have a founder of a company they're able to direct it a lot quicker and so you saw that during covid he streamlined a lot of the operations cut all these departments shrunk headcount all of that it's much easier to

do that as a as a founder for sure uh because you have people's you know people trust you more and you also have more shareholder trust and you feel like you do. And so you're able to take bolder actions. And so that's sort of important. All of these new business offerings and all that, I wouldn't trust a regular managerial consultant type CEO to launch any of these. It very much is because of Brian Chesky's unique background in design too. And I think we're talking about some of the differences between Airbnb and booking Expedia. I guess we didn't really hit on the design aspect because it's very ephemeral, or I should say it's very hard to quantify, but it's real. It really is. When you're on the UI of Airbnb versus booking, it's just a very clunky

interface on booking. It makes you not want to explore much. You're really just looking for something and getting out, whereas Airbnb does a fantastic job on the UI. And we could say, oh, well, these are mushy factors. They don't really matter much to a business. But if you're looking purely on specs, you would be hard pressed to find a reason why the iPhone is better than the Samsung, except of course, people love the iPhone much more. And it is because of a lot of these softer aspects of it just working all the time, it being more intuitive, the design, the way it feels. And so I do think all those sort of things are important. And so as we contemplate them building out these new businesses in a consumer internet area, I do think that having a strength

in the design aspects, the UI aspects, the user habits, all that really is important. And Brian Chesky has certainly shown that over time. And so I think he's very important to the company. I think that if you were saying, let us ring the company for cash, we're going to stop doing any sort of innovation or anything, you would certainly value the company differently and look at it differently. But then in that case, okay, maybe you don't need him. But as long as they are continuing to innovate, they're still in growth phases. They still have a lot more markets to conquer. I would much prefer to see the founder CEO there. Okay. Final question, as always, the premortem. Why do you think an investment in Airbnb will do

poorly over the next decade or what would cause it to do poorly? I think that there's a couple of ways you can answer this. One, you could just say preferences change. So people prefer hotels. They prefer the consistency that they offer. And it turned out that it was the wrong thesis, thinking that people really loved Airbnbs. What they really loved was traveling to all sorts of small places that people haven't been. And as soon as you get a hotel up there, or as soon as you get a professionally managed property there, they would prefer that. And Marriott, for instance, they do have this professionally managed homes offering where they have 100,000 plus homes in it already and hasn't been very successful.

But maybe something else like that, that could be something where people say, you know, I would rather not actually stay in someone else's home. Who knows? Maybe another pandemic helps push that, although we saw the opposite happen last time. So preferences changing would be one. Two could be something very weird with AI, where you have an AI agent that is now able to sort of scrape the web and able to go very deep into search and find things for you, that maybe all of a sudden you don't actually have as much value in having aggregated listings in a marketplace. This is not just a risk for Airbnb. It's a risk for all of these marketplaces, as I mentioned. Because what happens if all you need to do is just put your home on a website

somewhere and this AI agent can find it for you? Okay. Well, then you don't have ratings. You don't have reviews. You don't have trust. You don't have the simplicity of the platform, but it is hard to kind of think through exactly how things could change when all of a sudden you can have someone on your behalf, search all of the web, and you don't need sort of these kind of shorter listings to help guide you to make a decision, which is what Airbnb does is it aggregates all the listings for you. It gives you ratings. It gives you the stars. And I think that's always going to have value. To be clear, these risks I'm giving you are not risks, I believe. I'm just trying to get creative here. Something else could be with the property managers, the more they sort

of aggregate together and control more and more homes. And that becomes a larger portion of supply that makes Airbnb less differentiated versus competitors. And it also makes their properties kind of less special, less of these little idiosyncratic additions that people tend to like. And then there could be something with regulation, but they've been dealing with that for a long time. It hasn't killed them. But, you know, if you're saying what could go wrong, a sweeping regulation against sort of home sharing, maybe, you know, especially high tax on it, again, doesn't seem likely, though. You could also have just bad capital allocation. That would not be great. Maybe Brian Chesky really wants to launch a super app and starts pouring more and more of their

cash flow into it, despite results not looking good. That could be something else. But other than that, it's hard to see it. You know, you could always just say, you know, the stock goes nowhere. But in terms of the actual business, it's hard to see too many things really hurting them. All right, Drew, thank you once again for joining the show. And before we get out of here, give an elevator pitch on Speedwell Research and what any listener can find there. So Speedwell Research is research for the buy side. In contrast to a lot of the other research you will read. This is research that's written by someone who didn't just work at Goldman Sachs, but I worked on the buy side as well. And I am an investor as well. And so all of the research I

write are the things that I care about. It's very much long-term oriented. There's a lot more writing and narrative, a lot less sort of throw data at you graphs, really just trying to focus on understanding the business and the few factors that really matter. And right now we have more than half of all the top 50 asset managers. Someone there subscribes to our research. We have billionaire fund managers subscribe. And I think one thing that really sets us apart, and the reason why that is, is because, again, there's not a lot of research out there that's really just trying to help an investor understand the business and what matters for the long-term rather than just writing to write. Beautiful. Okay. Thank you once again.

And let me hit the disclosure before we get out of here. We are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan, I, or any podcast guests may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you everyone for tuning in to this episode, and we'll see you next time. Thank you.