Airbnb played the Booking.com-like performance marketing game in 2019, and got burned as losses piled up and revenue growth didn't keep pace. A centerpiece of Airbnb's roadshow is to show that its brand advantage and repeat visitor dynamics mean it doesn't have to deploy the same strategy as its peers.
Airbnb dabbled with the Booking.com performance marketing playbook in 2019, and it didn’t go so well.
That’s why during one of Airbnb’s virtual IPO roadshow sessions with management Thursday, CEO Brian Chesky expressed disappointment with Airbnb’s incremental marketing spend in 2019, saying the company didn’t see the returns it expected, Skift has learned.
In 2019, the last full year before the pandemic struck, Airbnb’s sales and marketing as a percentage of revenue increased 3.6 percentage points to 33.7 percent. Airbnb’s actual sales and marketing spend increased 47.2 percent to $1.62 billion in 2019, which the company described as an investment year, compared with 2018.
For 2019, Airbnb’s net loss widened to $674.3 million on revenue of $4.8 billion, a 31.5 percent hike.
By comparison, Booking Holdings’ sales and marketing as a percentage of revenue in 2019 was close to 40 percent and Expedia Group’s was nearly 50 percent.
But during the roadshow on Thursday, in which management took questions from the invited audience members during the virtual sessions, a source in attendance said Chesky said he expects Airbnb’s marketing spend as a percentage of revenue to decline over time, and the company would eventually expect EBITDA (earnings before interest, taxes, depreciation and amortization) margins of greater than 30 percent.
Airbnb’s EBITDA margin was 8 percent in 2019 compared with 38.6 percent at the more mature and public company Booking Holdings.
Regarding the nature of the questions and answers, one participant told Skift: “The answers to questions were generally lengthy, so not too many people got to ask questions.”
Chesky argued that the traditional divide between travel and living/lifestyle activities is blurring and that Airbnb is well-positioned to serve the trend.
He said the pandemic has introduced Airbnb to a new audience — 14 million new customers tried Airbnb in 2020 — and that the focus has shifted from Airbnb as an alternative to a hotel, to Airbnb as a safer option than a hotel.
Airbnb seems to trounce the online travel agencies in repeat visitors, and Chesky argued that Airbnb has better data than the online travel agencies to keep that edge.
As for those envisioned EBITDA margins of greater than 30 percent, Chesky said that Airbnb has opportunities in making both fixed and variable costs more efficient. He told investors that the pandemic reduced Airbnb’s cost structure by a couple of hundred million dollars, and these structural changes should be permanent.
Chesky also said Airbnb has opportunities to drive a higher take rate than today in features such as promoted listings and travel insurance, both areas where the online travel agencies are active.
The Airbnb CEO did address the hot-button issue of regulation, noting that 70 percent of its cities already cope with regulations, and that no city accounts for more than 2.5 percent of Airbnb revenue.
When cities impose stiffer regulations, Chesky said, the company does see a decline in business, but its supply of apartments and homes bounces back.
Are the online travel agencies, including Airbnb facing a more limited future where the huge growth trajectories of past years are off the table?
Not according to Chesky, at least when it comes to Airbnb. He said in 2019 Airbnb only did around 3 percent of its purported total addressable market of $3.4 trillion. He argued that Airbnb can take advantage of the secular trends in travel, and the company faces a “long runway of growth.”
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Photo credit: Airbnb CEO Brian Chesky (pictured) offered some regrets about a marketing strategy in 2019 during a roadshow presentation for its upcoming IPO held on Thursday, December 3. Asa Mathat for Vox Media