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Airbnb: booking beds and profits

Past performance does not predict future returns. You may get back less than you originally invested. Reference to specific securities is not intended as a recommendation to purchase or sell any investment.

Innovation cash kings of the next decade - In our new series we look at the companies that are ‘pivoting to profit’ and are at an inflection point of converting customer-driven innovation into shareholder value. This week we take a closer look at Airbnb.

This is the fourth article in the series, you can read the other articles here:

Twilio - delivering the message on profitability

Shopify – the engine of ecommerce refocusing on its core

Uber's road to profitability

‘The hotel company without any hotels’, Airbnb is often cited as emblematic of technology-led, capital-light businesses disrupting the old guard. Over the 14 years since it was founded, it has also often been used as an example of how such businesses can lack profits for all their innovation.

Things change. On the eve of Covid, Airbnb generated around $5 billion of annual revenue and was barely breaking even. Out of necessity due to the devastating impact of lockdowns on the business in 2020 and 2021, effectively all-but outlawing the business temporarily, Airbnb dramatically cut costs in order to keep the lights on, including halting all marketing expenses. Many of these cuts were kept as the business rebounded strongly on re-opening, unleashing a much meaner and leaner company. Today, Airbnb generates around $9 billion of annual revenue and around $4 billion of free cash flow, a phenomenal 40%+ free cash flow margin. This is what capital-light innovation looks like at scale, and it is a thing of beauty.       

What are the fundamental drivers of these outstanding economics? The first is value creation: Airbnb has simply made a market for ordinary people to generate a cash return on what is likely by far the biggest component of their capital stock, and otherwise underutilised and perhaps even burdensome to them. It was far from the first company to try – listing websites like VRBO were founded in the 1990s and, after all, bed and breakfast is not exactly new! – but it has been the first company to substantially solve the challenges of market liquidity and trust to make it a much more mainstream option for both home owners and guests.

Demand continues to grow healthily and Airbnb continues to take share from traditional hotels. With a current stock of over 7 million listings, it saw room nights growth of 11% year-on-year (yoy) in Q2 2023, ahead of 8.9% and 8.7% for leading hotel booking websites Booking.com and Expedia respectively. Furthermore, pricing has been strong with Airbnb’s global average daily rates at around $170 today versus around $130 on the eve of Covid. Following some pullback in 2022 and 2023, rates have started to re-inflect, increasing 1.4% yoy in the past quarter.

Second, Airbnb’s returns are high because of its powerful moat. Airbnb’s most valuable asset is its brand, which has become synonymous within the market that it has created. This means that 90% of its traffic is direct rather than from search engines with high associated costs, a major advantage over competitors. It also means that it is the default option for both supply and demand – 64% of its listings are exclusive, which reduces price competition. Moreover, the market that Airbnb has come to lead is inherently attractive – the prize of cracking such a difficult nut – with extremely fragmented supply that is much easier to bargain with compared with the much more concentrated and professionalised hotel industry. About 90% of Airbnb listings are owned by small scale operators and individuals, with just under half single property owners.   

As Airbnb continues to scale, these advantages are likely to compound. But there are also plenty of other opportunities to enhance Airbnb’s cash flows even further – from selling property management services, technology and data to hosts, to growing the market for “experiences” for guests and longer term and residential accommodation. The extremely diverse and idiosyncratic nature of the home vacation rentals market lends it extremely well to the use of artificial intelligence to enable better matching of rentals with guests and dynamic pricing – and Airbnb’s scale will enable it to drive the largest benefits from this and further strengthen its competitive advantage.

We are confident that Airbnb, like many of the great innovative companies born during the last cycle and focused on growth during that period, will be a cash king of the next cycle.

Understand common financial words and terms See our glossary

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested.

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

The Funds managed by the Global Innovation Team:

May hold overseas investments that may carry a higher currency risk. They are valued by reference to their local currency which may move up or down when compared to the currency of a Fund. May have a concentrated portfolio, i.e. hold a limited number of investments. If one of these investments falls in value this can have a greater impact on a Fund's value than if it held a larger number of investments. May encounter liquidity constraints from time to time. The spread between the price you buy and sell shares will reflect the less liquid nature of the underlying holdings. Outside of normal conditions, may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash. May be exposed to Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. Do not guarantee a level of income. The risks detailed above are reflective of the full range of Funds managed by the Global Innovation Team and not all of the risks listed are applicable to each individual Fund. For the risks associated with an individual Fund, please refer to its Key Investor Information Document (KIID)/PRIIP KID.


This is a marketing communication. Before making an investment, you should read the relevant Prospectus and the Key Investor Information Document (KIID), which provide full product details including investment charges and risks. These documents can be obtained, free of charge, from www.liontrust.co.uk or direct from Liontrust. Always research your own investments. If you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.

This should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets. It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust.

James Dowey
James Dowey
James is a lead fund manager of the Liontrust Global Innovation, Liontrust Global Dividend and Liontrust Global Technology funds. He has 19 years of industry experience, including serving as Chief Investment Officer at Neptune Investment Management. He has also researched and taught the history of innovation at the London School of Economics and advised the UK government on innovation. He holds a first-class MA in economics from Edinburgh University, an MPhil in economics from Kings College, Cambridge University and a PhD from the London School of Economics.

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