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Deep Dive: Airbnb

Airbnb’s origins can be traced back to 2007 when founders Joe Gebbia and Brian Chesky hosted three guests in their San Francisco home as every hotel room in the city was taken; fast forward to a decade later, and the platform has grown exponentially. Airbnb has revolutionised travel, and its 4 million hosts have welcomed over 900 million guest arrivals to approximately 100k cities in almost every corner across the globe. With 5 million rooms available (2019), Airbnb’s room count is almost the size of the five largest hotel chains combined. But all this growth has come at a cost as Airbnb has been blamed for rising rents, hollowing out communities, and welcoming unruly tourists. 

So what are the risks that Airbnb faces? What are its future plans? How does it make money?

In the third edition of our newest series- Deep Dive, we are focussing on Airbnb.

Quick Facts

Airbnb's stock price history
  • Incorporated on June 27, 2008, as AirBed & Breakfast, the company later changed to its current name Airbnb on November 15, 2010. 
  • The primary corporate colour is Rausch
  • Airbnb is listed on the Nasdaq with ABNB as its trading symbol. 
  • It had four million hosts around the world (as of Dec 2020), with 86% of them located outside of the United States.
  • The platform is predominantly used by a younger audience, with the majority of guests aged between 18 and 34.
  • As of Dec 2020, the company had 5,597 employees in 27 cities around the world, and 47% of them were women. Airbnb’s product development vertical employs 1,480 engineers. 
  • On average, around two million people stay in an Airbnb property each night.
  • The cities of London, Paris and New York have the largest number of listings.

Key Terms

  • Nights and Experiences Booked: It represents the sum of the total number of nights booked for stays and the total number of seats booked for experiences, net of cancellations and alterations that occurred in that period. A night can be for a listing with one or more bedrooms and can include one or more guests. A seat is booked for each participant in an experience. Most of Airbnb’s bookings have come from nights.
  • Gross Booking Value: It represents the dollar value of bookings on the platform for a specific period and is inclusive of cleaning fees, host earnings, service fees and taxes, net of cancellations and alterations that occurred during that period. Since revenue from the booking is recognised upon check-in, GBV is a leading indicator of revenue. It is also important to note that the entire amount of a booking is reflected in GBV during the quarter in which booking occurs, whether the guest pays the entire amount of the booking upfront or elects to use the Pay Less Upfront program.
  • Hosts: Hosts are classified into two categories- individual and professional. Individuals are those who activate their listings directly on Airbnb through its website or mobile apps. Professionals are those who run hospitality businesses or property management and generally use APIs to list their properties on the platform.


Airbnb's gross and operating margins

The analysis is based on Airbnb’s annual reports ending December 31, 2020 and June 30, 2021

Revenue: Revenue consists of services fees adjusted for incentives and refunds. Airbnb considers both hosts and guests as customers. For stays, services fees are charged as a percentage of the value of the booking, excluding taxes, and vary based on factors specific to the booking, such as booking value and the duration of the booking. For experiences, Airbnb only earns a host fee. Most of its revenues come from stays booked on its platform

Airbnb’s business is seasonal. Typically, the first, second, and third quarters have higher Nights and Experiences Booked compared to the fourth quarter, as guests plan for travel during the peak travel season, which in the case of North America and EMEA is in the third quarter. Historically revenue has been highest in the third quarter which has the most number of check-ins. GBV is highest in the first and second quarters, which have comparatively lower check-ins. 

For the six months ended June 30, 2021, revenue increased by around US$ 1 billion or 89%, relative to a comparable period last year, primarily driven by higher average daily rates (defined as the average rental revenue earned for an occupied room per day) and an increase in the number of check-ins. For the comparable period last year, there were higher reductions to revenue due to the extenuating circumstances policy for cancellations resulting from COVID-19. The policy allowed guests who made reservations on or before March 14, 2020, to receive a full cash refund upon cancellation and provided hosts with a portion of the amount they expected to earn from bookings that were cancelled due to this policy.

Between 2018 and 2020, revenue has decreased at a 2.56% CAGR.

While Airbnb’s gross margins have fairly remained constant between 74% and 76%, its operating margins have fluctuated widely, ranging from a high of 0.51% in 2018 to a low of -106.27% in 2020.  

Geograohical breakdown of Airbnb's revenues

The percentage of revenue from international operations has steadily decreased from 67.4% in Dec 2018 to 42.4% in June 2021, while the proportion of revenue from the U.S. has almost doubled from 32.6% in Dec 2018 to 57.6% in June 2021. 

Cost of Revenue: It includes payment processing costs, merchant fees and chargebacks, amortization of internally developed software and acquired technology and costs associated with third-party data centres used to host the platform. 

Cost of revenue increased by US$110 million, or 25%, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was primarily due to the increase of US$134 million in merchant fees which was partially offset by the decrease in chargebacks and the cost of data hosting services. Between 2018 and 2020, the cost of revenue has increased at a 0.46% CAGR. Cost of revenue makes up anywhere between 24%-26% of revenue

Airbnb's expenses as a percentage of revenue

Operations and Support: Operations and support expenses primarily consist of personnel-related expenses, third-party service provider fees associated with community support provided to hosts and guests, and customer relations costs. 

Airbnb expects its operations and support expenses to reduce as a percentage of revenue due to its investments to improve operational efficiency. It incurred additional operations and support expenses during Q4 2020 due to the stock-based compensation expense associated with restricted stock units (RSU) as a result of the IPO.

Compared to the six months ended June 30, 2020, operations and support expenses increased by US$11.3 million, or 3%, for the six months ended June 30, 2021. For the period between 2018 and 2020, operations and support expenses have increased at a 12.94% CAGR

 Operations and support expenses constitute anywhere between 17%-26% of revenue

Product Development: It primarily consists of personnel-related expenses and third-party service provider fees associated with the development of the platform.

Product development expense increased by US$236 million, or 50%, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was largely driven by a US$263.4 million increase in payroll-related expenses, comprised of stock-based compensation related to RSUs. Between 2018 and 2020, product development costs have increased at a staggering 68% CAGR

Product development cost makes up anywhere between 16%-82% of revenue

Sales and Marketing: Airbnb’s marketing strategy consists of brand marketing, communications, and performance marketing. While brand marketing increases awareness among potential hosts and guests, performance marketing brings in additional traffic from high-intent prospective guests. The communication team works across policy, press and influencers to share important news about Airbnb.

Sales and marketing expenses include personnel-related expenses, brand and performance marketing and those related to Airbnb’s field operations, policy and communications, and portions of referral incentives and coupons. 

Airbnb expects its sales and marketing expenses to decline as a percentage of revenue relative to 2019. The company’s current marketing strategy is leaning towards brand marketing and away from performance marketing. 

For the six months ended June 30, 2021, sales and marketing expenses increased by US$112.4 million, or 26%, compared to the six months ended June 30, 2020. The increase was primarily due to a US$117.1 million increase attributed to marketing activities. Between 2018 and 2020, sales and marketing expenses have increased at a 2.2% CAGR

Sales and marketing expenses make up anywhere between 25%-35% of revenue

General and Administrative: The category consists of personnel-related expenses for management and administrative functions. Going forward, Airbnb expects to incur additional general and administrative expenses as a result of operating as a public company, investor relations, and higher expenses for corporate insurance. 

General and administrative costs increased by US$167 million, or 69%, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. The increase was primarily due to an increase of US$98.3 million in payroll-related expenses associated with stock-based compensation. Between 2018 and 2020, general and administrative expenses have increased at a 33.23% CAGR. General and administrative expenses constitute anywhere between 13%-34% of revenue

Impact of the Pandemic

In order to shield itself from the effects of the pandemic, Airbnb raised US$2 billion in the form of term loans in April 2020 and drastically reduced its operating expenses, including marketing program spend, downsized its workforce by around 25%, suspended all facility build-outs and reduced capital expenditure. Travel has bounced back with increasing vaccination rates and the lifting of quarantine and travel restrictions. Airbnb recorded revenues of US$2.22 billion for the six months ended June 30, 2021, up from US$1.18 billion for a comparable period last year. 

Airbnb’s timely measures have yielded positive results as it has witnessed a significant increase in Nights and Experiences Booked during the second quarter of 2021 compared to the same period in 2020. 


Loss: Airbnb has incurred net losses every year since its inception and has stated that it may not be able to achieve profitability. Net loss for the years ended December 31, 2018, 2019, and 2020 were US$16.9 million, US$674.3 million, and US$4.6 billion, respectively.

Regulations: The company is faced with a complex set of rules and regulations governing the short-term rental and home-sharing business which may limit the ability or willingness of hosts to share their spaces and exposes Airbnb and its hosts to significant penalties. Cities such as Barcelona and Paris are pushing back on Airbnb’s relentless expansion as it has driven up rents and forced out residents leaving local businesses without a community to serve. Barcelona has 9,600 licensed holiday apartments in the city and at least an equivalent number that is unlicensed, leading to an explosion of tourism. Paris city hall has estimated that Airbnb has deprived the city’s residents of about 30k homes used exclusively for short-term tourist rentals.

Competitors: Prominent competitors include- 

  • Internet search engines: Google and Baidu.
  • Online travel agencies: Bookings Holdings and Expedia Group.
  • Hotel chains: Marriott, Hilton and OYO.
  • Online platforms offering experiences: Viator and GetYourGuide.
  • Listing and metasearch websites: TripAdvisor and Trivago.
  • Chinese short-term rental competitors: Tujia and Meituan B&B

Forex: Airbnb offers integrated payments in more than 40 currencies, and for the year ended December 31, 2020, approximately 50% of its revenue was denominated in currencies other than the US dollar


With a US$100 billion+ market cap, Airbnb is a behemoth in the travel and tourism industry. But there’s still enough room to grow as Airbnb has estimated its total addressable market (TAM) to be worth US$3.4 trillion. As a part of its long term growth strategy, Airbnb has planned to focus on long-term stays, local travel and remote working. It also plans to expand its presence in regions such as India, China, Latin America, and Southeast Asia

Airbnb’s unparalleled ability to scale its services combined with its prudent cost-cutting strategy during the pandemic and its focus on long term growth is reflected in its stock price, which has witnessed a 2.5x growth from US$68 during its IPO to US$172.54 as of Nov 30th, 2021. But Airbnb’s lack of a timeline to achieve profitability is concerning. 

Airbnb | Deep Dive | Travel and tourism | Travel Startup | Traveltech

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