Airbnb Maintains Market Share Through Adaptability

Fiona Lim Kyla Rivera Richard Zhou Richard Xue
Altitude Capital
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Text

Altitude Capital
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Executive Summary
Recommendation
Industry Overview
Company Overview
Investment Thesis
Valuation
Risk & Control
Airbnb maintain an 18.7% market share in the industry
Airbnb's strengths lie in its strong brand recognition, counter positioning and network economies
Strong growth metrics
Airbnb will maintain a dominant market share through their adaptability during changing market
conditions and sustainable, long-term business growth strategy
Blended Price: $137.50 4 year exit IRR: 25.68%
BUY - Upside of 19.92%
Reputational Liability Legal
Artificial Intelligence AirCover Insurance Local Government Regulations

Branding Counter Positioning Network Economies
OVERVIEW INVESTMENT THESIS VALUATION RISK & CONTROL RECOMMENDATION APPENDIX
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Airbnb Overview
Operates a digital marketplace that facilitates the connection of hosts and guests for the booking of “unique local experiences.”
With a business dynamic where new hosts are
former guests, Airbnb is well-positioned to
capture growing demand as they are not limited
to room capacity.
Listings are offered in a plethora of locations
that are unrealistic for hotel chains to consider
such as regional destinations, owing to the lack
of consistent tourism in certain destinations.
Airbnb is renowned for providing "unique local
experiences," under their 'Belong Anywhere'
brand identity.
103.7M
Nights & Experiences Booked
17.0B
Gross Booking Value
58%
Year-on-Year
Revenue Growth
Competitive Advantage
up from 13B in Q1 2021 up from 83.1M in Q1 2021

Difficulty securing funding for new entrants due to investor
skepticism in ability to disrupt niche peer-to-peer
lodging business
New York San Francisco
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Industry Overview
Barriers to Entry
Complex legislation and regulatory rules regarding rental of short-
term stays
1
State law prohibiting
rental of units for less
than 29 days
Airbnb hosting was
illegal and hosts were
fined by the city
Some cities restrict hosting of
paying guests for short periods
while others require registration,
permits or a license
2
Investors may be skeptical about the ability of a
startup to gain market share due to the strong hold
existing competitors have over the market
2020 2021 2022 2023 2024 2025 2026 2027 2028
$12.3B
$15.1B
U.S. Vacation Rental Market
size, by accomodation type, 2020 - 2028
Airbnb
18.7%
Booking
Holdings
37.1%
Expedia
Group
27%
Other
17.1%
Home Apartments Resort/Condominium Others

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Environmental, Social, and Governance
Environmental Sustainability
Working with individual & corporate vendors to
help them reduce carbon footprint of their
business operations
2030 Goal - Net Zero Company
Source: 2021 Airbnb ESG Update Report
Social
Developing reduction targets for all scopes of
emissions associated with global corporate
operations
Investing in high-quality nature-based offsets to
offset residual emissions - including through
the Lowering Emissions by Accerlating Forest
finance (LEAF) Coalition
Commitment to ensuring hosts and guests can
use Airbnb without encountering prejudice or
discrimination
Collected and remitted more than $4 billion in
tourism taxes to local governments around the
world
Airbnb Guest Spending supported more than
300,000 jobs worldwide, directly and indirectly
Strengthening Communities Through Travel
Culture & Workplace
Promoting flexible working, including permanent
remote working
Generous benefits including healthcare, leave, and
employee stock purchase plans
Rated 4.3 stars by employees on both Indeed and
Glassdoor
Supporting its employees

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Environmental, Social, and Governance
Governance
Diversity and Inclusion
Diversity Council comprising of senior leaders
to further embed their
Diversity and Belonging Plans into their
organisations
Airbnb named to Parity.org Best Companies
for Women to Advance List 2021
Co-Founders Brian C, Nathan B and Joseph G
remain on the Airbnb board. Key management
stakeholders are heavily invested into the
business
Co-founders collectively own 29.72% of the
firm, with Brian C. owning a 10.48% stake
Since 2019, the population of
underrepresented minorities in the leadership
team has increased by 2.6% to 15.2%
The population of employees who identify in
the gender binary as women is 47.2% as of
June 30, 2021
Data & Privacy
Annual publishing of Law Enforcement
Transparency Report to be more transparent
on the information disclosed to government
authorities globally
Airbnb has a comprehensive Privacy Policy that
outlines how user data is collected and used

Investment Thesis
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Commitment to long-term customer relationship and trust...
...and leading to strong
Customer Retetion
...drives organic traiffc
>
>
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Airbnb is well-positioned for long-term sustained growth
Maintaining user trust and loyalty through
refund guarantee schemes during COVID-
19
Committed more than $1 billion to refunding
customers and $250 million to hosts
impacted by cancellations
Introduced "Aircover" as a form of insurance for
both host and customers in 2022. Guests to be
protected against host cancellations, check-in
issues, and will have access to a 24/7 Safety Line.
Airbnb boasts a 1st year
customer rention of 55%,
compared to Expedia's 28%
in Q4 2021
Between Jan and Sept 2020,
approximately 91% of all Airbnb
traffic originated from direct or
unpaid channels

Well-positioned during COVID-19 and for
its recovery
Post-Pandemic Strategy focussing on
longer-term stays
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Airbnb is highly agile and adaptable to changing market conditions
During COVID-19, Airbnb marketing expenses represented
14.2% of revenue in 2020, compared to 23.7% in 2019
As companies shift to permanent remote working, Airbnb is
pushing its "Live Anywhere" strategy, focusing on longer-
term rentals
22% of gross nights booked came from stays 28 days or onger
for Q4 2021
Minimal impact on long term revenue generation due
to strong brand recognition, with year over year
revneue increase of 58% in Q2 2022
Focus Intiatives
1
2
3
"I'm Flexible" Search Options
Simplfying the guest journey by allowing
guests to discover new unique new
experiences and places
Ask a Superhost program
Providing support and mentorship for new
hosts to that platform by pairing them with
a Superhost
Rationale
Creating more supply in the
recovering travel market in a
cost-efficient manner-
>
>
Consolidating Airbnb's
branding of providing unique
new experiences to guests
Aim to boost current global
occupancy rates, which is
hovering at 48% compared to
average hotel occupancy rates
of 63.3%
>
Curated Categories
Sorting homes into more than 50 themes
and categories to attract guests to places
they would otherwise not have picked

Blended Analysis
52 Week Range
Broker Consensus
CCA
DCF
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Valuation
$40 $60 $80 $100 $120 $140 $160 $180 $200
Football Field Analysis
Sensitivity Analysis
Target Price
$137.50
Upside
19.92%
Case Probabilities
10% Bull
70% Base
20% Bear
Our 5-year target price of $137.50 represents a BUY recommendation for Airbnb, Inc.
on September VWAP
1-month VWAP: $114.66 Target price: $137.50

Margin of
Safety
Exit Share Price IRR (Annualised)
0% $253.84 25.68%
5% $241.15 24.08%
10% $228.46 22.41%
15% $215.77 20.67%
20% $203.07 18.86%
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Valuation - IRR & Exit Multiple
Based on a 4 year time-frame, Airbnb's expected return is 25.68% per annum, based on its last close of $101.75
47
EV/EBITA
Exit Multiple
42
Current EV/EBITA
Multiple
Catalysts
Permanent reduction in marketing
expenses post pandemic with reliance of
targeted brand and performance marketing
EBITDA margins to increase from 12.2% in
2021 to 34.1% in 2025
Strong projected 4 Year average revenue
growth of 25.3% from 2022-2025
1
2
3
DCF Base Case
Assumptions
WACC
8.52%
2025
Exit

Risks and Control
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Criminal Activity
Shootings in U.S. Airbnb locations
have threatened the stability of
Airbnb's brand reputation and
consumer demand
Housing Prices
"Airbnb" Effect impacting local
economies and rental markets as
Airbnbs slowly increase the value of
an area; to the detriment of locals
Social Economic Legal
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Airbnb's Risks and Control
Artificial Intelligence
Increased background checks and
updating of watchlist
Restrictions and Regulations
Enforcing restrictions against short-
term lets on Airbnb, requiring
landlords to acquire permits if they
seek to rent 50%
Damage to Homes / Reservation
Cancellations
Guests hosting parties and
damaging the homes; Hosts
cancelling reservations last minute
AirCover
Insurance protection for both
guests and hosts; up to $1 million in
damage protection
Global Party Ban
Blanket ban on such events in 2020
Key General Risks threatening Airbnb's reputation and user base

Live Anywhere program and
unique/online experiences to build
customer loyalty post-COVID.
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Airbnb's Risks and Control
Key Business Risks threatening Airbnb's market share and future growth
Profitability Threat
Competitor Threat
Mitigations
Strategic reduction in new marketing,
safety and technological upgrades as
firm reaches maturity stage.
Position as a market-first platform
and 'network effect' helps to sustain
Airbnb's market share.
High barriers to entry prevents
further competition, whilst
destination growth favours Airbnb.
2. Out-of-proportion costs for
marketing, safety and
administration
3. Direct Competitors
Consists of platforms in the vacation
rental space e.g., Vrbo, Wimdu
4. Indirect Competitors
Comprises other travel agencies and
accomodations e.g., Expedia
1. Cyclical Risk
COVID-19 and recession impacting
top-line revenue assumptions

Recommendation
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Target Price: $137.50
Current Share Price: $101.75
Thesis
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Investment Recommendation: Buy
Valuation Risks Buy
Investment Factors
Growing market share with
significant barriers to entry
against new competitors
Potential Risks
Exposure to reputation and
liability risks, but strong
mitigation strategies include
insurance protection
Return
25.68% Annualised Return
based on a 4 year exit
Current Price
Upside of 19.96%
based on a blended
analysis

Appendix A: Airbnb Business Model / 'Take Rate' Altitude Capital
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1. Host Comission:
Airbnb charges a 3-5% commission for all hosts utilising their platform to market their
properties. This is charged on a per-booking basis.
2: Traveler transaction fee:
Airbnb charges a 'service fee' ranging from 0-20% for users of the platform seeking to
find travel accomodation and temporary stays.
Airbnb's business model is a scalable and simple solution as a result of the rising
popularity of the sharing/peer-to-peer economy.
Aggregator/Online Marketplace Business Model

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Appendix B: Environmental, Social, and Governance Rankings
ESG RANK: Below Average
Airbnb vs SASB Dimensions
Environment Social Capital
Leadership &
Governance Human Capital
Business Model
& Innovation
63/100 45/100 44/100 48/100 47/100
Momentum: 28/100
Negative trajectory of ESG performance over trailing 12 months

2020 2021 2022 2023 2024 2025
Revenue 3378 5991 8280 10102 12223 14668
Sales
Growth
-29.7% 71.47% 38.2% 22% 21% 20%
Overall Global Tourism & Hospitality Market is projected to
grow at 11.81% CAGR from 2022-2026
Despite inflationary pressures, global hotel stays in Q2 2022
showed an increase of 40% in stayed room nights and a 9%
increase in stayed average daily rates quarter over quarter
Strong Industry Demand
Macro Factors Micro Factors
Focus on core business of stays and experiences will be key revenue drivers
to reaching its revenue targets
Airbnb's curated experiences feature and "I'm Flexible" Option is expected
to be key in increasing booking conversions
Airbnb's safety line and AirCover will help boost user confidence and lead to
increased customer retention
Airbnb's strong branding and long-term positioning will enable it to
out-perform industry trends
2022 143
2023 171
2024 206
2025 247
Appendix C: Airbnb Revenue Catalysts Altitude Capital
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Figures in $USD M
Projected Gross
Booking Value (GBV)
to be in line with
revenue growth

Appendix D: Exit Multiple Justification Altitude Capital
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US Interest rates forecasted to ease in latter half of
2023, with 2026 yields trading at 1.75%
Consumer Confidence expected to rise from 83 in 2022
to 98 in 2024
With supply chain and energy constraints easing in
2023-2024, it is projected Fed will overshoot its goal
with inflation averaging 1.4% over 2023-26
Extrinsic Factors Intrinsic Factors
Airbnb projected to continue to devlier YOY postitive
earnings to shareholders
Strong Core Values, Robust Leadership Team and
Culture
Long-term vision based on acquiring user trust,
reputation and Branding
47
EV/EBITA
Exit Multiple
42
Current EV/EBITA
Multiple
based on 4 year exit in 2025

2020 2021 2022 2023 2024 2025
SG&A 5940 4282 4968 5051 6112 6601
% Revenue 176% 71.47% 60% 50% 50% 45%
General SG&A Expenses
Focus on brand and performance marketing
Reliance on organic traffic to drive growth
Marketing Expenses to stay consistent and will not grow
proptionally to revenue
General expenses such as tech, administrative and
insurance costs set to increase in line with revenue
Appendix E: Airbnb SG&A Justification Altitude Capital
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Figures in $USD M unless stated otherwise
Includes R&D Expenses
R&D Expenses
For the past last 5 years, AIrbnb R&D expenses have increased
faster than revenue growth to improve its UI/UX and overall
customer experience
Airbnb will turn its focus on its core business of experiences
and housing rentals instead of diversifying its interests, and
thus R&D Expenses are projected to stabilise
R&D Expenses projected to stabilse

Bear Case
Attributed to cyclical risks owing from
post-COVID recession threats (high
interest rates, low wages growth and
high inflationary pressures).
Adjustments made to headline revenue
assumptions, WACC and TGR (above)
Standardised 20% weighting
attributed to DCF Bear Case.
Base Case
The base case reflects our final
recommendation on Airbnb based on
assumptions derived from current
market conditions, Airbnb's historic
performance, and our qualitative
investment thesis.
attributed to DCF Base Case.
Bull Case
Attributed to the possibility of a
lowered threat of cyclical risks in the
post-COVID period, whether it be due
to travel boom(s) (consumer-demand),
government policy adjustments
(monetary/fiscal), lowered pricing etc.,
attributed to DCF Bull Case.
WACC: 9.52% TGR: 2%
Appendix F: DCF Case Justification Altitude Capital
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WACC: 8.52% TGR: 2.5% WACC: 7.52% TGR: 3%

Appendix G: Airbnb Acquisition Activity Altitude Capital
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Source: TechCrunch 2019

Appendix H: Companies with remote-first WFH policies Altitude Capital
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Appendix I: New Initiatives Altitude Capital
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"I'm Flexible" Search Option
Curated Categories

Appendix J: Key Business Metrics Altitude Capital
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Nights and Experiences Booked
Sum of total number of nights booked for stays and total number of sets booked for experiences, net cancellations
and alterations
GBV
Dollar value bookings on platform inclusive of host earnings, service fees, cleaning fees and taxes net cancellations and
alterations
Q2 2022 Shareholder Letter

Appendix K: U.S. Vacation Rental Market Altitude Capital
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Market Share
Branding
Weaker branding due to use of
region specific subsidiaries
for different accomodation
offerings
Strong branding synonymous
with vacation rentals globally
18.7% 27.0%
Strong branding related to
offering of hotel stays rather
than individual vacation rentals
37.1%
Appendix L: Branding Altitude Capital
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Appendix M: Comparable Company Analysis (Industry) Altitude Capital
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Appendix N: Comparable Company Analysis (Sharing Economy) Altitude Capital
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Appendix O: WACC Calculation Altitude Capital
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Appendix P: Broker Consensus Altitude Capital
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Appendix Q: DCF - Components Altitude Capital
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Appendix R: DCF - Base Case Altitude Capital
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Appendix S: DCF - Bear Case Altitude Capital
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Appendix T: DCF - Bull Case Altitude Capital
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Appendix U: DCF - Weighted Share Price Altitude Capital
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Appendix V: DCF - Assumptions and Schedule Altitude Capital
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Appendix W: Consolidated Statements - Summary Altitude Capital
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Income Statement
Balance Sheet
Cash Flow Statement

Appendix X: Football Field Analysis & Weightings Altitude Capital
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Airbnb Maintains Market Share Through Adaptability

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