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Airbnb priced its historic initial public offering at $68 per share for a company valuation of $47 billion. That’s the largest travel IPO in history by a mile — the next closest was Hilton’s 2013 listing valued at $19.7 billion.

Shockingly, shares soared even higher in trading to close the day on Thursday at $145 and give Airbnb a market capitalization of $100 billion, making it the largest travel company in the world, catapulting it ahead of Booking Holdings.

From a pure multiple valuation perspective Booking Holdings shares now trade at 9x Wall Street estimates for 2021 revenue. In contrast Airbnb now trades at a whopping 24x our estimate for 2021 revenue.

What in the world in the world is going on here? What are investors thinking, or not thinking as the case may be?

A great many are betting on Airbnb’s growth potential. That means these investors will need to grapple with the paradox at the core of Airbnb’s growth: how to continue to scale without diluting the unique brand its built. A hard truth is that it may not be possible to do both.

Airbnb’s Brand is the Key to its Growth

Why care about diluting the brand? Well, Airbnb’s brand is not just a question for marketers or academics. It has a tangible dollar impact that investors need to understand. In 2019, 69 percent of Airbnb’s revenue came from repeat customers who had already booked at least once within the past year — and the company doesn’t even have a formal loyalty program.

Those guests returned for free, whereas Expedia and Booking pay dearly to attract the same customer. If Expedia and Booking spent the same on sales and marketing as a share of revenue that Airbnb does, they would save a collective $4 billion per year. These savings accrue to the bottom line and helped Airbnb turn an operating profit in 2017 and 2018, something other newly public unicorns, like DoorDash, have never done.

Lee Pillsbury, managing director of Thayer Ventures and former Marriott executive, thinks that, “consumers right now look at Airbnb as a sole source provider and they have done a nice job establishing a brand as part of this short-term rental market.” But he cautioned that, “I think consumers are likely to become more educated and better shoppers.”

Part of the way that Airbnb can hold onto that brand edge, and in turn maintain its favorable margin structure, is by having unique homes available exclusively on its platform.

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Who Hosts on Airbnb?

Airbnb breaks out its hosts into two buckets: individual vs. professional hosts. But do not be misled, individual hosts can have more than one home listing on the website.

Instead, the categories are defined by how each host connects to the platform. Individual hosts list their properties directly on the Airbnb website while a professional host uses a channel manager or a property management system.

New Airbnb disclosures give the impression to a casual viewer that it is a platform dominated by small individual hosts. But let’s inject some nuance into that characterization. We think it is more accurate to speak of three types of hosts on the platforms:

  1. True individuals: Hosts with a single listing. They make up a majority of hosts but a minority of bookings.
  2. Micro-entrepreneurs: Hosts that connect directly to Airbnb but with multiple properties, usually two or three homes. They make up 19 percent of the population but 28 percent of bookings
  3. True professionals: Businesses that use commercial software tools to list properties on multiple sites and that typically have their own book direct channel. E.g. Sonder or Vacasa. These are 10 percent of hosts but 29 percent of bookings.

We think the micro-entrepreneurs with multiple listings are the secret sauce of Airbnb. These small businesses eschew the blossoming landscape of professional property management software in favor of the tools that Airbnb develops in-house. That means they probably are listing solely on Airbnb.

These hosts who are all-in on Airbnb explain Airbnb’s huge inventory of proprietary listings. Based on data from Transparent just 32 percent of property listings on Airbnb in the U.S. are cross-listed on other platforms, an industry-leading figure. For context, in the U.S. 44 percent of Vrbo listings can be found on another site and a whopping 70 percent of properties on Booking.com are available elsewhere.

But the question is: can Airbnb continue to maintain a leading market share, drive growth, and retain proprietary host listings all at the same time?

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Mac or PC?

Perhaps a good analog is the Apple vs. Microsoft divide in computing. Airbnb is the modern Apple of the short-term rental world while Expedia and Booking are aiming to be the equivalent of the Windows operating system.

Microsoft opened its Windows operating system up to any software developer or hardware manufacturer that wanted to use it. As a result, it grew to be the largest operating system in the world.

Apple on the other retained a distinctive, design-driven approach; obsessed with the user experience. Though Apple was an innovator, its curated approach ultimately caused it to cede market share to rivals.

The comparison seems clear to us. Even down to the design driven first-principles. Afterall Airbnb co-founders Brian Chesky and Joseph Gebbia met at the Rhode Island School of Design.

Airbnb innovated and disrupted short-term rentals leading to the wave of professionalization we are experiencing today. Yet Airbnb may not, in the final tally, be the biggest player, as the Microsoft analog makes clear. Its distinctive approach to acquiring and marketing inventory — highlighting yurts over two-bedroom condos — simply cannot be scaled indefinitely. Something has to give.

Will Airbnb Go Mass Market?

Previously it seemed that Airbnb was trying to move into the mass market. It spent $441 million to acquire HotelTonight, adding traditional hotel rooms to its platforms.

With the current crisis, Airbnb Chief Executive Chesky told Skift that he wants to rededicate the business back towards its core hosts. “A crisis clarifies what you have and why you still have it… and gives you clarity about what’s truly important,” he said. Chesky sees the core mission of Airbnb as making human connections which will mean doubling down on Airbnb’s unique stays.

To be clear, this approach comes with many benefits. Airbnb’s special brand — it is the only travel company we can think of that is also a verb — is the primary reason why Airbnb does not need to sink billions of dollars into performance advertising like Booking or Expedia do. Apple is after all, one of the most profitable companies in the world.

But Chesky and investors should come to terms with the fact that this strategy may well concede Airbnb’s currently leading market share to rivals like Booking and Vrbo.

Unrealistic Investor Expectations?

There are many things to like about Airbnb. The short-term rental market is hot because of the pandemic. It is a growing business that has demonstrated the ability to turn a profit and generate positive cash flow.

Perhaps most importantly it has built an excellent team. “What I admire about Airbnb,” said Pillsbury, “is how nimble they are. I think they showed better management and a faster response than almost anyone else in the travel industry.”

But the question is not whether Airbnb is a good business – because make no mistake it is a great one. The question is just how much of that greatness is now priced into its $100 billion valuation.

Airbnb is now the most valuable travel company in the world, but can it stay that way?

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Photo Credit: (L-R) Airbnb Founders CSO Nathan Blecharczyk, CEO Brian Chesky and Chief Product Officer Joe Gebbia Frazer Harrison/Getty Images for Airbnb