Management is working on achieving a better balance within one segment of the business.
Twice annually, the travel platform Airbnb introduces new products and features, with releases taking place in both the spring and winter. The company’s management uses these occasions to celebrate the various “upgrades.” While some may find these announcements noteworthy, skepticism exists regarding the significance of these updates, as the details may not stand out unless highlighted.
However, the company’s 2024 Winter Release includes an innovation that has garnered attention. Airbnb has launched a co-host network, which has the potential to significantly impact investors if executed successfully.
### The Objective Behind the Co-Host Network
Airbnb operates as a marketplace, facilitating short-term property rentals for travelers. This marketplace involves two primary components: travelers generating demand and hosts providing supply.
For hosts, a large number of travelers coupled with fewer available properties is ideal, as it allows for higher pricing. Conversely, travelers prefer an abundance of property choices and less demand, which can result in lower prices. For Airbnb, the ideal scenario is balanced growth in both supply and demand, fostering widespread adoption.
It is believed that demand for short-term rentals has increased at a faster pace than supply. In the second quarter of 2022, the average daily rate for an Airbnb rental was $164, which rose to $170 in Q2 2024. While this increase is modest, it indicates that demand is surpassing supply, suggesting that new hosts are not joining the platform as quickly as new travelers.
This discrepancy may be attributed to the ease with which travelers can try the platform—simply by booking a night—while potential hosts face more barriers in preparing a property for guests.
The co-host network aims to address this area of friction. Property owners without the time or experience to host can now list their properties with a co-host, who manages hosting duties. Property owners can browse for suitable co-hosts within their vicinity, while co-hosts have the autonomy to offer their services and set their own fees.
Brian Chesky, Airbnb’s co-founder and CEO, explained, “With the Co-Host Network, we’re taking the work out of hosting,” underscoring the network’s intention to simplify property listing on the platform.
Fundamentally, Airbnb created the co-host network to enhance supply. By reducing barriers for hosts, the likelihood of increasing the number of property listings improves, addressing the issue of supply not matching surging demand.
### Implications for Shareholders
An increase in average daily rates does not automatically benefit Airbnb’s business model. If rates rise but the total number of nights booked declines, the company’s overall bookings may suffer—a crucial aspect of the business.
While Airbnb generates revenue from customer bookings, it retains the majority of funds until the check-in, allowing the company to earn interest. The primary revenue, however, comes from keeping a portion of the booking fee, known as the take rate. Therefore, increasing overall bookings is vital for revenue growth.
Demand for short-term rentals continues to climb, presenting Airbnb with the challenge of expanding its property supply. The co-host network theoretically simplifies property listing for hosts, potentially leading to a surge in supply.
In the long term, this increase could enhance Airbnb’s overall adoption by providing travelers with more booking options, potentially boosting platform bookings. This development could have positive implications for the business, as robust business fundamentals are crucial for stock investment. Consequently, Airbnb’s 2024 product update holds significance for shareholders.
