Management seems to be trying to bring better balance to one component of the business.
Twice per year, travel platform Airbnb (ABNB -1.17%) releases new products and features, once in the spring and again in the winter. Management takes a bi-annual victory lap as it celebrates all of the “upgrades.” Don’t get me wrong — personally, I’m a fan of this company. But I admittedly struggle to see anything too exciting in these announcements most of the time. To me, many of the updates would go unnoticed if they weren’t pointed out.
However, Airbnb’s 2024 Winter Release has something new that’s really caught my eye. The company has introduced a co-host network, and I think it has the potential to actually move the needle for investors if things go well. Here’s why.
The hidden goal of a co-host network
Airbnb is a marketplace business. People who own properties can rent them out to travelers on a short-term basis. This dynamic gives the marketplace two components: travelers on the demand side and hosts on the supply side.
If you’re a host, you want a lot of travelers on the platform and not many properties, because this will drive up the prices you can charge. If you’re a traveler, you want a lot of properties and not much demand, because this drives prices lower. But if you’re Airbnb, you’d like to see both supply and demand increasing equally as overall adoption grows.
However, I believe demand for short-term rentals has increased faster than supply. In the second quarter of 2022, the average daily rate for an Airbnb was $164. In Q2 2024, the average daily rate was $170. It’s not much of an increase. But the price increase suggests that demand is outpacing supply. In other words, new hosts aren’t joining Airbnb as fast as new travelers are.
Why might that be? Well, it’s easy to give Airbnb a try if you’re a traveler — just book a night and see if you like the experience. But if you’re a host, there’s a lot more friction in getting a property ready for guests.
Airbnb’s new co-host network is a way to reduce friction in this one area. If you own a property but don’t have the time (or experience) to be a host, you can list your property with a co-host who will take care of hosting responsibilities. Simply browse the list until you find someone in your area you like. At the same time, it seems that co-hosts will be able to post their services and set their own pricing.
As Airbnb co-founder and CEO Brian Chesky said: “With the Co-Host Network, we’re taking the work out of hosting.” In other words, this update is designed to make it easier to list a property on the platform.
On a more fundamental level, Airbnb created the co-host network to increase supply. In other words, if the company can make it easier for hosts to list a property, then chances are more people will. This is important. Remember, the trend in average daily rates suggests that supply hasn’t kept up with demand.
Why ordinary shareholders should care
An increase in the average daily rates isn’t necessarily good for Airbnb’s business. If nightly rates go up but overall nights booked go down, the company’s bookings could drop — and bookings are crucial for this business.
Airbnb takes money in when travelers book, but it doesn’t distribute funds to hosts until check-in. In the meantime, it can earn interest income from customer money. But the bigger income comes when it keeps a portion of the booking money for itself — its take rate. Therefore, the goal is to grow overall bookings in order to grow revenue.
Demand for short-term rentals is clearly still rising for Airbnb. The struggle is to grow its supply of properties. The co-host network makes it easier than ever for hosts to list a property, at least in theory. If it’s successful, the platform could see a surge in supply.
In the long term, this could help with overall adoption of Airbnb, because more travelers will have more available booking options. This could grow bookings on the platform, which would be a boost for the business. Business fundamentals are the most important aspect of investing in stocks. That’s why this 2024 product update from Airbnb is important for shareholders.
Jon Quast has positions in Airbnb. The Motley Fool has positions in and recommends Airbnb. The Motley Fool has a disclosure policy.