Airbnb (ABNB) is an internet platform that links people who want to rent out their homes with others who want to rent a room or a full house for a more homely experience than a hotel. The platform is funded by both host and guest fees. Before acquiring Airbnb stock, investors need to grasp its financials.
What Exactly Is Airbnb?
Airbnb (NASDAQ: ABNB) was launched in San Francisco, California in 2008. Its mission is to be the greatest online marketplace for residential rental homes where travelers can find lodging and tourism activities. Hosts and guests can use the Internet platform or the mobile app to access Airbnb.
On December 9, 2020, the firm went public, offering 50 million shares for $68 a share. Following early travel limitations during the epidemic, the firm experienced a record third quarter in 2021, producing USD 2.2 billion. This resulted in net sales of $834 million, which were four times higher than in 2020.
Luxury Retreats International, Tilt.com, Trooly, and Deco Software Inc. are among the company’s subsidiaries. As of November 17, 2021, the stock has never undergone division and had a valuation of $199.63 per share.
The Business Model of Airbnb
Airbnb acts as a middleman between short-term owners (hosts) and rentals (guests). They make the process easier by displaying houses in a specified location from which tenants may pick. Once the renter has decided on a home, they may reserve it and pay the required transaction fee. The host receives an alert about a visitor and can subsequently arrange the occupancy of the property.
Airbnb charges a fee for this service. Fees might be paid entirely by the host or divided equally by the host and the visitors.
When it comes to competition, Airbnb’s main rival is Vrbo, which also advertises homes from independent landlord hosts. Airbnb also competes with large booking sites like Booking.com, Tripadvisor, and Expedia, all of which now feature independent listings.
How Does Airbnb Make Money
1. Split-Fee on Bookings
The split-fee system requires the host to pay a portion of the fee and the guest to pay the remainder. The host pays 3% of the booking subtotal under this revenue arrangement. The amount includes the nightly cost as well as any cleaning or additional guest fees. It excludes Airbnb fees and local occupancy taxes. This sum is withdrawn automatically from the host’s compensation.
The visitor pays fees of up to 14.2% of the booking subtotal. These costs are determined by a variety of criteria and are displayed to the guest throughout the checkout process. Factors such as whether it is a weekend or weekday rental, if it is a peak season rental, and whether unique facilities are provided, affect the rate.
For example, if a room rental costs $100 per night with an additional $40 cleaning fee, the booking subtotal amounts to $140. The host incurs a charge of $4.20, while the visitor may face a charge of up to $19.88.
2. Host-Only Fee
The whole charge is deducted from the host’s booking subtotal in this pricing structure. It will be between 14% and 16%, with hefty cancellation penalties. For example, in mainland China, the cancellation cost is 10%. Hotels listed on the site, along with other specialized hosts such as software-connected hosts that combine digital listings with Airbnb, must comply with the host-only charge requirement. Please keep in mind that if you are a hotel or specialized host, you will most likely be placed on the host-only price schedule.
3. Experience Fees
Airbnb Experiences are now available. This is an in-person or online activity led by knowledgeable locals. An experience may be a local art lesson or an outdoor tour of the region. Airbnb charges a service fee of 20% for experiences. This contributes to the expense of most experiences’ products, services, support, and insurance.
When a booking is concluded, Airbnb deducts the experience service charge from the host’s compensation. Payouts are made available 24 hours after the experience or the first immersive component of the experience is completed. Experiences may cost more than the booking fee and are charged separately.
Airbnb is a straightforward marketplace strategy that links renters with property owners for short-term rentals and local experiences. It earns money by charging fees for each booking. Both hosts and visitors or directly from the hosts, can provide this, depending on the listing arrangement. Those considering an investment in Airbnb should first research the company’s history and financials. Seeking Alpha has additional information about Airbnb, including ratings, earnings history, and more.
How to Start an Airbnb Business
Starting an Airbnb business to generate money may appear to be less difficult than beginning another sort of business from scratch, but it’s critical to realize the time, work, and investment required. Here are the essential steps to launching an Airbnb company.
1. Determine whether you require authorization
Obtain approval from your landlord, co-op board, or homeowners association, if applicable.
- Examine your lease, which may contain a clause for subletting.
- Check with your homeowner’s association to see if there are any limits on renting out your house on a short-term basis.
2. Locate and arrange an Airbnb space
Whether it’s a single room with a shared bathroom, a separate wing with its entrance, or your entire house while you’re away for the weekend, you’ll almost certainly need to invest in the space. Consider the following costs:
- Installing a keyless lock to facilitate check-in.
- Purchasing items that will make the home more pleasant for long-term visitors, such as a refrigerator, microwave, and Keurig.
- Putting up a wall to divide a room.
- Making a separate, furnished television room.
- Providing clean bedding, towels, and toilet paper to the space. (To receive the greatest scores, you must go above and beyond the fundamentals.)
- Increasing utility bills.
- Cleaning services are available between bookings.
- Making up for a co-host (see below).
- Taxes and the Airbnb host fee are included.
3. Determine your pricing.
Consider affordability, audience, and market.
The average Airbnb charge is 3% of the booking subtotal. The cost is greater if you are an Airbnb Plus host, reside in Italy, or have a particularly tight cancellation policy. Your guests see a greater listing price than you earn.
Airbnb stats illustrate how your nightly costs compare to other Airbnbs in the region, as well as whether you might consider decreasing (or raising) your prices on specific days of the week or during periods of high demand. You may set minimums for how many nights guests can stay at your location, which can help offset the expense of turning over the space (cleaning and maintenance). You may also want to consider charging for extra visitors or other services like cleaning, equipment rental, pet-friendliness, or excursions.
Airbnb charges visitors before arrival and pays your money 24 hours after your guest checks in, using the method of your choice (PayPal or direct deposit, for example). Your Airbnb cannot take cash payments. Visa, Mastercard, American Express, Discover, debit cards, Apple Pay, Google Pay, and PayPal are all accepted.
Other elements that may influence your compensation include weekly or monthly discounts, weekend or seasonal pricing, payment for co-hosts you hire, and VAT (value-added tax) in certain non-US areas.
4. Make a list of your available space.
Make an accurate list; don’t exaggerate or hide information concerning trouble areas.
- Highlight what makes your place unique so that it stands out from the crowd.
- Take note of accessibility elements that might assist guests in navigating the place.
- Include amazing images to assist your guests grasp the size and qualities of the location.
5. Hire or recruit assistance (a co-host)
You might wish to enlist the assistance of at least one additional person for:
- Emails and other forms of contact.
- On-site repairs or requests.
- Important matters.
- Guests can benefit from neighborhood-specific advice.
- The procedure for checking in.
Add your co-host (up to three) to your listing, and make sure they understand Airbnb’s Co-host Terms of Service. You and your co-host will decide how much each reservation will cost. If you can’t locate a reliable co-host, third-party firms can assist hosts with inquiries, cleaning areas, and other tasks.