Shares of alternative lodging platform Airbnb (NASDAQ:ABNB) have been lagging the market so far this year, now off more than 14% year to date. Following the company’s underwhelming quarter, which included a downbeat forecast for third-quarter bookings, several analysts downgraded their price targets on the name. One firm, Argus Research, actually downgraded its recommendation to hold from buy, citing a wide range of factors, most notably falling bookings growth and higher marketing spending, that could weigh on earnings.
Indeed, it’s hard to get bullish on ABNB stock after that nasty earnings miss, guidance downplay, and the slew of analyst cuts that followed. As hotels and traditional accommodations gain relative traction, Airbnb will need to bring a bit more to the table to lure travelers back. Undoubtedly, Airbnb will always have fans seeking unique stays and experiences. However, after an inflationary past few years, some consumers may question the value offered relative to more traditional accommodations (think hotels and motels).
Key Points About This Article
- Airbnb’s latest quarterly fumble is a concern for some investors.
- The addition of amenities and other perks could help even the playing field with hotels.
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Airbnb Blames the Economy for a Rough Quarter
For now, it seems like management is mostly pointing the finger at the economy for its recent rough patch. While economic growth certainly isn’t optimal, many major hotel firms aren’t in all too bad a spot right now. For instance, shares of Hilton Worldwide Holdings (NYSE:HLT) and Hyatt Hotels (NYSE:H) are down just 6% and 9%, respectively, from their all-time highs. More strikingly, they’re both up big (44% and 33%) over the past year, while ABNB stock has sagged nearly 20%.
Indeed, one of the main draws of booking with Airbnb in the earlier days was the substantial cost savings to be had versus hotels. After an inflation-ridden past few years, though, the value proposition of Airbnbs may have faded a bit.
Can you still save big money by going for an Airbnb over your run-of-the-mill budget hotel?
Possibly, but probably not a meaningful amount over a comparable traditional accommodation. Also, any cost savings may come at the expense of sought-after perks and amenities.
Looking ahead, it’s looking like Airbnb will have to reduce its cut of the pie and run the risk of increasing margin pressures, or it’ll have to step up its amenities game to be more competitive with traditional stays. This could prove incredibly difficult.
That said, the company is going to give its best shot to improve its value proposition and win back customers without taking all too large of a margin hit. If Airbnb can get perks and amenities right, perhaps it can pad its margins as it reverses the troubling trend of declining bookings.
Sweeter Airbnb Perks Can Help it Take Share Back From Hotels
Undoubtedly, Airbnb needs to offer a better bang for the buck if it’s to course correct because consumers are speaking with their wallets right now. Their spending behavior suggests that consumers see more value in traditional stays than novel alternative accommodations, as well as the uncertainties and lack of amenities they entail.
Looking ahead, Airbnb seems hopeful it can enhance guest experiences by introducing new amenities to keep up with various hotel chains. Whether we’re talking about the inclusion of spa-like perks (think hotel-esque linens, robes, slippers, upscale shower gels, and soaps) or the availability of mobile massage therapist services, Airbnb has an opportunity to close the amenities gap with the big chain hotels.
Additionally, Airbnb may be able to one-up the hotels by allowing users to search for unique amenities that aren’t normally found in hotels. Think pet perks, premium gaming options (how many hotels have video-game consoles?), and even private meditation spaces to find one’s zen.
Undoubtedly, I find there to be a huge opportunity to make a splash on the front of unique stays with customized amenities. Though only time will tell if doubling down on perks will help Airbnb regain the upper hand, I do think amenities are becoming an increasingly important part of the travel experience, especially for younger generations, many of whom value customizable comforts and conveniences over luxury.
The Bottom Line on Airbnb
Demand in the U.S. market may be lagging of late. But the addition of sweeter perks may just be able to win back some of the crowds lost to hotels. Additionally, the company has plenty of global share to capture as it expands while building brand affinity and awareness via higher marketing spend. At 15.6 times trailing price-to-earnings, ABNB stock seems too cheap, especially for a firm with levers to pull to bring back double-digit growth.
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