Motley Fool Money - Airbnb Leaves NYC, Joins S&P 500

Episode Date: September 6, 2023

New York City cracked down on short-term rentals, but is it a big deal for Airbnb?  (00:21) Ricky Mulvey and Jason Moser discuss:  - How restrictions on short-term rentals could impact Airbnb’s growth story.  - Why investors are sour about AMC’s new share issuance.  - One company managing its share count well. Plus, (15:20) Deidre Woollard interviews Oliver Franklin-Wallis, author of “Wasteland: The Dirty Truth About What We Throw Away, Where It Goes, And Why It Matters”. Companies discussed: ABNB, EXPE, AMC, LOW Hosts: Ricky Mulvey, Deidre Woollard Guests: Jason Moser, Oliver Franklin-Wallis Engineers: Dan Boyd, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh, boy. Fantastic. You guys go hard. Daredevil Born Again official podcast Tuesdays, and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. Now has fewer places to go to bed. You're listening to Motley Full Money. I'll be joining us now is Jason Moser. Jason, good to see you.

Hey, Ricky, how's it going? Going well. Airbnb has lost a city, not as New York City. I'm going to run through some of the rules that Airbnb has to follow, something they are calling a de facto ban in what is called Local Law 18. All right, Jason. Here are the new rules. Hosts can only run a place where they live. Hosts must be present during the stay. Hosts and visitors must leave the doors inside the dwelling unlocked so occupants can access the entire unit. There's an exception if you are using the room privately and Airbnb units are limited to two guests and you've got to register them. All right.

Is this a good headline or do you think this is a long-term problem for Airbnb? So on its own, I don't know that it's a very good headline. I think it probably catches a lot of attention. So it's not a great headline, I think from that perspective. I wouldn't call this necessarily a problem for Airbnb on its own, but I think this is a sign, at least, of headwinds or some challenges, perhaps to the growth assumptions going forward for the business. I mean, I don't think this is something that, you know, this isn't something's Airbnb killer, right? I mean, let's get that, let's get that out of the conversation now.

That's an even better headline though. Well, yeah, there you guys. New Airbnb killer. You know, this is why we do a lot of it. do what we do. But, you know, I do think, again, I mean, this is something that at least makes you start to question the growth assumptions going forward for the business, right? This isn't just about New York City, but it's really, it's more so what it portends, right? How other communities, how other cities or municipalities, how they're going to react to this in order

to help shape their laws on the matter. And I mean, when you talk about New York City, obviously that's a very, very large market, right? I think that's something like 40,000 plus Airbnb, B listings in New York, according to data from inside Airbnb. But when you put that in the context of Airbnb's overall network, I mean, they have over 7 million listings around the world, and to date over 1.5 billion, with a B, cumulative guest arrivals. So, I mean, this is clearly a very large company, a very large network. And I think it's important to remember, this is a global company, right? This is something that, this is probably a bit more of a problem that we focus on here at home.

You look at something like Europe, for example. It seems like they've had a bit more success in working with the EU and all parties involved. It come up a sort of middle-of-the-road solutions that can work for everyone. The reason why I bring that up is simply because the EU is home to over one million hosts on Airbnb, which is more than any other region in the world. So while we here at home love to focus on things here at home, it's all so worth remembering. This company's opportunity is the entire world, and that does matter. Yeah, I think rent also might be a sore spot for probably the most expensive location to rent in the United States.

I'd imagine. To your point, New York City is not the first town to put some limitations on Airbnb. It seems to be the most stringent, though. Many cities require licenses. Some cities limit the number of days that an Airbnb can be rented. In San Francisco, that's 90 days. In Amsterdam, it's 30. But, you know, like many companies, it kind of went first before figuring out the regulatory.

landscape. We'll start our business here and then see what happens. Do you think that strategy is going to continue to benefit Airbnb? Now that they're a mature company, do you think they sort of have to ask questions first? As they mature, I think you probably are right, it gets to be more than ask questions first. I think for the time leading up to now, it's probably a lot easier just to ask for forgiveness later. And I think that works out for a lot of us in a lot of ways. But this is kind of one of those things that comes with being a disruptor and finding new solutions to old problems, right? It's not to say that Airbnb's way is the way, but their way certainly opens the conversation

up to a new way. And I think that's kind of ultimately what we're looking at here. I think of other companies that have come into a big space like this and disrupted. Uber stands out as one. I mean, we've seen them going through through sort of regulatory ebbs and flows, right? the whole gig economy thing. So it's not necessarily to say that Airbnb's way is the way, but this opens up the conversation to a new way. And then, I mean, you also, again, like I was saying earlier, I mean, this is something New York City is just one little piece of the

overall puzzle here. So you do have to ask yourself a question from a global perspective. I mean, is this just a really, really loud minority? Maybe so, maybe not. I mean, I think as real estate goes, it is all about locations. Some places will welcome stuff like this. more than others, particularly here domestically, right? As we know, the United States is a big melting pot, you know, going from the east to the west to the north to south. There are a lot of different perspectives on things like this. And so, you know, those that don't want it, they find ways to regulate it.

And then those who do want it find loopholes. All I heard you say there in referring to New York was that it's really loud and a small piece. Minority, maybe not, but loud, absolutely. Anyway, Airbnb, there's that New York City story, but it also joined the Standard and Poor's 500, which the stock seems to be reacting to. Which story do you think its shareholders should be paying more attention to? Absolutely, the New York City story.

Joining the S&P is great. That comes with a little reputational boost, maybe. It brings your stock more into the phrase as funds rebalance. Maybe it brings you more into the conversation for investing nerds like, us. But, I mean, this is ultimately, the S&P news is ultimately, it's nothing that really contributes to the fundamentals of the business. I mean, it can be a little reflective of the fundamentals up to this point, but ultimately it's nothing that really contributes to the fundamentals of the business, whereas New York City, again, maybe not just on its own, but this

idea in general, right? This sort of longer-term trend and watching how this plays out, this very much will play out in the fundamentals of the business. We'll only learn more in time. Let's talk a little bit about those fundamentals. Revenue is growing. at an 18% year-over-year clip for Airbnb, you would think that it would be feeling a post-pandemic hangover. Why do you think this business is still growing the way it is? Well, I think one thing, I mean, certainly this is a disruptor, and I think they have sort of taken an old sort of stayed space and traveling and sort of the way that we as travelers have been used to doing things, and they've given us new options. And in many cases, really impressive

viable, attractive options. And again, going back to that global opportunity, remember, travel in total is a $2 trillion global opportunity. So, I mean, this is just a huge market opportunity. Now, obviously, that's not all Airbnb's market opportunity, but it's a good portion of it. And it just, again, goes to speak to the massive opportunity there in front. But then, I mean, when you look back at the company's most recent quarter that they reported, I mean, They are really seeing a lot of trends continuing to go in the right direction, right? Active bookers grew in every region. They had more first-time bookers compared to a year ago.

They mentioned that guests are traveling even farther now. Whenever we talk about cross-border, I think a lot of times cross-border is something we talk about with payments like MasterCard and Visa. Cross-border is something I think you need to get used to hearing with companies like Airbnb, right? Cross-border nights booked increased 16 percent. the second quarter versus a year ago. So people are traveling farther or going into different countries. Asia Pacific, where really inbound travel in Asia Pacific was very hampered of the last

several years. That was 80% versus a year ago. And then ultimately, guests are also staying longer with Airbnb. And in quarter two, they noted that long-term stays remained 18% of total lights book. And I think a lot of us were wondering if maybe that number wouldn't start pulling back as the world kind of got back to normal. It's. seems like right now, that number's holding steady, which is encouraging. But I think when you put all of those things together, that really tells a story of a business that is still, as Ron Gross might say, firing on all cylinders. Yeah, but you're going to pay for that growth. If you're an investor, it trades at about 35 times forward earnings. That's about triple the price

tag of competitor Expedia. It's also got doing well, operating income of around $2 billion and a very solid return on invested capital above 30%. Any thoughts of the valuation, the growth that those Airbnb investors are paying for? Yeah, so full disclosure. I actually recommended the stock to our members back at the end of June. It's up around 13% or so since then. My basic thinking back then, all the way back to June, was ultimately looking out through 2027.

I think, I believe they'll be able to continue to growing, they'll be able to continue growing, They'll be able to continue growing that top line somewhere in the range of 12 to 15%. To me, that seems more than achievable compared to historical results. That really does also take into consideration some of these regulatory headwinds that they may witness from time to time. Ultimately, I could see them more or less doubling operating income versus what they earned in 2022, if not better. So you look at the stock today. It's around 23 times free cash flow, and that's actually 30 times if you back out the stock-based compensation. I'm operating in cash. I mean, I wouldn't call this a steal by any stretch, but I think

it's a reasonable time to consider opening a position. I think this is one where you maybe consider building a position over time and adding on points of weakness. Because again, to me, kind of like that rule breaker mentality, looking for those top dogs. Airbnb just really stands out as one of those top dogs in the travel industry. Last question before the next story. Let's say you've got a trip book to New York City. You staying in a hotel or are you taking a roommate? Man, I'll tell you, going up to New York City, that might be a little bit of a stretch. I think I wouldn't mind paying up for the hotel. But every once in a while, I look back like what we did with Paris a couple of years ago with our family.

We did an Airbnb there on the outskirts of the city. That worked out real well. So, I don't know. With these new regulatory changes, I'm probably opting for a hotel. But, you know, if you know somebody and you can find the right place, maybe that'll sway my decision-making. Depends on how cool the host is. Let's move to AMC. Movies are back, but maybe not the theater chain.

The stock is down about 20 percent today as the time of this recording. On news that AMC will be issuing 40 million new shares, that's about 6 percent. That's about a 6 percent increase from its current share count. Company has done this before Jason. You like following share counts of companies. Why do you think its investors are taking this news so poorly? Well, I just ultimately because it doesn't solve the problem. I mean, it's like with many things, I mean, this is just a short,

short-term solution to a long-term problem. If anything, I mean, this just really reiterates the challenges the business is facing. Traffic is down. The top line isn't going anywhere. Profitability is hampered. The company's capital position continues to be challenged. This is something that buys them a little time, but at the end of the day, it's just that. It's a temporary solution to a business with some greater fundamental issues.

The other reason it's issuing shares is to quote, bolster liquidity to repay, refinance, or repurchase its existing indebtedness and for general corporate purposes, what does that word salad mean to you? You know what they say? You can't borrow your way out of debt, Ricky. And that does feel a little bit like what this is. And ultimately, the end of the day, what this means if you're an investor in AMC, you better pack a lunch because it's going to be a while.

I think it's also important to note that this company over the past 12 months has about three X'd its existing share count. So perhaps those long-term investors might be feeling a little diluted. I don't want to end this in a totally negative place, though. We're a little bit negative right now. You could talk about AMC's share count or the fact that it doesn't really own any of the property that it's theaters sit on. But let's end in a more positive place.

What's a business that you think is managing its share count well? Well, I love your laugh. Glass-half full perspective there. I think that's exactly the right way in the show. And I did a little bit of thinking over this when you posed the question. earlier. And I think, you know, one company that stands, when it comes to share management, right, you want to either see these issuances going to good investments, right? I mean, companies will issue shares to make acquisitions. But more often than not, we talk about share

repurchases. And I guess you just want to make sure the share repurchases are doing what they're supposed to do, which is really bringing that share account down. You bring that share account down, it makes every share out there worth, in theory, a little bit more. One company that stands out to me in regard to repurchases. You look at a company like Lowe's. And Marvin Ellison, I really give him a lot of credit for doing this. I mean, he's had some challenges, I think, just with the business itself. Part of that just is the nature of the business and how mature it is. But he has brought the share count. Lowe's has brought the share count down by 218.8 million shares since 2019. That's about 27.5%. Now, they spent $43.8 billion on share repurchases

all through the way to buy those 218.8 million shares. That's a cost basis of around $200. Shares today, $230. You look at the total return for lows since 2019. Shareholders are up 130%. So I feel like they've done okay, especially for a business, really. And again, it's not necessarily a challenge business, but it's in a mature industry. It's only recording top line growth annualized over the last five years, around 5.7%. You consider that and then you look at what they've done from a capital management perspective. I think they've done right by shareholders. It's nice to see a company buying back shares and reducing its share count.

Jason Moser, appreciate your time and your insight. Thank you. You hear companies talk a lot about how things are made, a little bit less about where they end up. Oliver Franklin Wallace is a contributing editor for Wired and the author of Wasteland, the dirty truth about what we throw away, where it goes, and why it matters. Deidre Woolard caught up with Franklin Wallace to learn about the business of trash and the gold mine of electronic waste. One of the lines you had about midway through the book that really stuck with me was about how little we see of the way things are made and how little

we understand of the true cost. So why was it important for you to tell these stories? Yeah, I think that's right. The thing that struck me from the outset of this journey is that you know, we spend as a society a lot of time talking about where stuff comes from, right? We care about whether things are all organic, whether they're free trade and air miles and all these kind of things that we kind of think about with our purchases. But we spend or historically have spent much less energy thinking about where it goes afterwards. But, you know, as I kind of explore in this book, quite often these days in this kind of global economy, that journey is just as long.

And there are a huge number of variations in where your things end up. quite often things are getting loaded on container ships and going halfway around the world before they're being disposed of. And the impact is quite profound, actually. So, you know, I use the example of the solid waste industry is estimated to be about 5% of all greenhouse gas emissions. Food waste, which is calculated separately, is thought to be 8 to 10% of all greenhouse gas emissions according to the IPCC. So those two figures together give, make it, you know, waste is a huge environmental challenge before we start talking about why the ocean is full of plastic and those kind of the tangible elements of the pollution that we kind of see in our everyday lives.

So the thing that kind of fascinated me was like, okay, well, how did we get to this state where the ocean is full of, you know, the Pacific Ocean has a garbage patch, you know, five times the size of Mexico in it and how, you know, what, how did we get here? And a big part of the answer is because we've kind of historically tried. treated waste is something that should be out of sight and out of mind. And as a result, it's something that has kind of, you know, been on the periphery. And my hope is that this kind of book can start a conversation, an ongoing conversation, I should say, because, you know, over the last few years, as I've been kind of reporting this story, the level of consciousness

around waste and recycling and those kind of things has changed hugely, which has been really encouraging. But there's still quite a long way to go. So hopefully this is kind of a way to kickstart another conversation. One of the things that you just mentioned is that, you know, out of sight, out of mind, right? One of the things that many countries have done for years is export their trash. But the economics of it, that's kind of shifting. So what are the long-term consequences of that one? We can't just kind of ship it away from us.

Yeah, that's right. So this story really started in 2018 for me, because for people who don't know, for the past, really for the past two decades, the story of waste has been the story of the growth of China. And a lot of the stuff that we were throwing away and particularly things to be recycled, whether that's scrap metals or plastics, was being sent to China, which is, you know, the global industrial hub to be melted down and remade. The problem is, is that, you know, we were sending thousands and thousands of containerships loaded with garbage every year back to China.

And often what we were sending wasn't very high. quality, so it was, you know, things were mixed badly, or it was dirty and essentially unusable, partly because of what we talked about, you know, like no one was really checking and there was this sense that, okay, well, they're not going to send it back, so you can kind of get away with a lot. And what ended up happening was in about 2018, the Chinese government turned around and said, right, we've had enough of this. You're sending too much garbage like it's polluting our environment. We're producing enough of this stuff locally that we don't really need the materials anymore. And they shut their doors to the international

waste trade, more or less. They passed these incredibly stringent environmental curbs on what could be, what waste could be important. And all of a sudden, basically overnight, the entire global waste economy kind of crashed. And we saw a bunch of waste companies, particularly in places like California and on the West Coast, where there were a lot of exporters going bust. And the waste markets in the international waste trade essentially had this kind of panic of, okay, well, what are we going to do with all this raw material? And it ended up flooding places like Southeast Asia, Malaysia, Indonesia, Vietnam, Thailand. And in the intervening years, has been a story of essentially kind of whackamol because, you know, plastics will flood into a country like Vietnam or in

or Thailand and kind of overwhelm the waste management system there until they've passed banned. So it's a series of countries now have banned waste imports. So the result in the global North and in the West has essentially been, it's kind of galvanized a sudden reinvestment in our waste infrastructure. In the UK, for example, where I am right now, there's been a huge, like a series of big waste reforms. There's been big investment by large waste companies in building new recycling facilities, for example. Because at the same time as the waste market has crashed, we've had this huge kind of environmental awakening among consumers about the impact of our waste and our carbon footprints and particularly the impact of plastics on the oceans so all of a sudden people

are choosing to buy recyclables more and recycle plastics more it's become very desirable for companies to include recycled plastics in their products in some countries now like the UK it is legally mandated to have a certain quantity of recycled plastics now in packaging in the UK so you kind of have these two competing, you know, forces. And the result has been a kind of upheaval in the waste industry that is kind of quite remarkable and a level of change and upheaval and innovation that has been a long time coming. So it's a very exciting space, but there's been a lot of upheaval in a short period of time. Well, you mentioned cobalt and lithium earlier, and you had this stat in the book that stuck out to me, which is that only 17.4% of electronic waste is recycled,

So we spent a lot of money on our phones and, you know, I think we're starting to use them a little bit longer, but we are still so bad at recycling electronics. How is there any way for us to get better at this? Yeah. So, I mean, the good news about that is that, you know, electronic waste, we kind of went through this incredible glut period of electronic waste because whenever you have a new technology that, you know, electronic waste, because whenever you have a new technology that. that's kind of really rapidly improving a smartphones as a classic example. You know, that technology was improving so quickly year on year that people were constantly wanting new ones. And so we were getting new phones every 12 months or every 24 months or what have you.

And the level of waste, the wastefulness inherent in that is kind of astonishing to think about, particularly when you understand the value of the materials in your smartphone, right? There's not just things like gold and platinum, it's cobalt, it's neodymia, And it's like there are all of these rare metals in there that are incredibly difficult to get to. And so there's real value when we throw them away. And for a long time, you know, this stuff was essentially disappearing. It was going in landfills or it's going in, you know, your kitchen drawer or the back of a cupboard somewhere.

And so we don't really know the end fate of a lot of this material. Now we're in a situation where, you know, tech companies and governments have kind of realized the value locked away there. and so there's a lot more focus on recycle content and you see companies like Apple doing interesting things with e-waste recycling. One of my kind of most surreal moments in the reporting of the book was I went to write about ERI, which is one of the biggest recycling electronics recycling firms in America. I went out to their big plant in Fresno. And you go into these places and again, it's essentially like, I don't want to oversimplify

thing, but it's like the most gigantic blender you've ever seen. You know, it's a, it's a disassembly line, and they go through these things, and they're kind of crushed and then shredded and all of these different kind of magnetic and flotation means of kind of separating out the different materials. The silicon, rare earths, copper, you know, they have extremely like high-end ways of separating these materials, but a lot to do, and then at the other side of things, there are like literally guys with like hammers like hammering stuff apart and and like because when you know when you get something size of a TV there are some stuff that's like

literally glued together and so before you can recycle you have to like tear the glue apart so it's kind of a fascinating industry to be a part of and yeah the growth is is quite remarkable and the value there is is truly not quite under not quite appreciated yet but it but there's a great statistic in the book which is that there is more gold in a ton of e-waste than there is in a ton of gold ore so you you end up with this situation, which is what we have now, that large mining companies are among those investing in electronic waste and in what they call urban mining, which is like essentially mining old landfills eventually to see what metals can be recovered from there,

because there's so much value. That's fascinating. So instead of like trying to dig gold out of the earth, we're now going to try to dig it out of the trash. Well, precisely. And, you know, it makes a lot of of sense, right? Because particularly rare metals, you are having to dig insane low amounts of oil. You know, the concentration of copper ore now when you mine it is much, much lower than it was

at its, you know, at the peak of copper mining, for example. So it's getting harder and harder to get this stuff. Meanwhile, we've got, you know, huge quantities of it already on the surface, essentially, you know, that we don't have to dig down and find. So the ability to find this stuff in our landfills or in our kitchen drawers is suddenly very competitive. So which is, which is why you can find even now that you can go and, you know, sell those old electronics for a decent price and someone will take it off your hand and it will get turned into a new iPhone or something. And I would encourage everyone to do that if you can.

Because honestly, if you want to talk about waste, like the mining industry is crazy. And the thing that I think shocks people the most is if you understood the discrepancy between industrial waste versus the household waste. You know, we spend so much time talking about recycling and things we do at home. There is one estimate which I cannot, I think I have to credit this to an academic called Max Libran, because I read it in his book, but I think it comes from old EPA data that by weight, which is a very crude measure, 97% of all waste is industrial waste. And when you consider like how much of that is the petrochemical and the mining industry,

and it's literally weight because it's heavy rock and things. But, you know, it's so overwhelming the amount of industrial waste that it's almost hard to picture. And a lot of that come from mining. So if we can find ways to get that out of our old smartphones and cut down the amount of mining that we need to do, then, you know, we'll all be better. It's just a portion of Deidre's conversation with Oliver Franklin Wallace.

That captured your interest. The full-length interview is up on the Motley Full Money YouTube channel. As always, people on the program may have interests in the stocks they talk about. and the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.