Airbnb: The Hospitality Giant Without Property

If someone had asked you in the mid-2010s whether you'd be willing to stay in a stranger's spare room on your next trip, chances are you would have answered something along the lines of, “No, why?” Fast forward twenty years, and Airbnb has become a cultural phenomenon. It is now the world's largest platform for short-term rentals and has become a natural part of hundreds of millions of people's travel routines. What began as nothing more than a website, started by three friends just trying to make rent, has grown into a global platform. And depending on how dramatic you want to be, it has changed the very way people travel.

• Humble beginnings: Airbnb was founded to help make rent. The first guests slept in the co-founders' living room on air mattresses and were served a basic breakfast.

• Y-combinator: Airbnb was accepted into Y-combinator, providing it with much-needed capital and advice.

• Aided by crisis: The financial crisis of 2007-2008 helped Airbnb grow, as people were looking to make some money on the side, while those traveling were looking for budget-friendly accommodation.

• VC darling: Airbnb raised several large seed capital rounds, with some of the most notable investors being Sequoia Capital, Google, and most importantly, Peter Thiel's Founders Fund.

• Regulatory pressures: Regulatory pressures have been a recurring theme for Airbnb throughout the years. Complaints about inducing housing shortages and driving up rents have been a constant source of headaches for Airbnb ever since the mid-2010s.

• Exceptional FCF generation: The company is incredibly asset-light and has maintained FCF at over 40% of revenue since the IPO.

• Strong competitive advantages: Airbnb has exceptional brand strength, strong network effects, and unique inventory.

Before we get into the Airbnb story, we're going to take a quick moment to reflect on just how much of a phenomenon the company become. More and more people every year now default to booking their vacation stays, business travels, or weekend getaways through Airbnb. This visualization summarises just how popular it has become to Airbnb one’s stay:

Nights & experiences bookings have grown almost 7x since 2015

Nights & experiences bookings have grown almost 7x since 2015

So, how did Airbnb manage to go from zero bookings to well close to 500 million anually, and how does the modern company operate? That's what we're about to find out.

Our story begins in San Francisco during the fall of 2007. Brian Chesky and Joe Gebbia, both graduates from the Rhode Island School of Design, shared an apartment in the South of Market neighborhood. San Francisco is known for many things, but affordable accommodation and an abundance of apartments are not one of them. For Chesky and Gebbia, like so many other residents of the city, making rent was a constant source of anxiety. This was bad enough on a regular month, and was only exacerbated when their landlord informed them that rent was going to increase by 20%. This was money that the duo simply didn't have. But what they did have was creativity, an empty living room, and a couple of air mattresses.

Coincidentally, a design conference was scheduled to take place in San Francisco, and the hotels in the city were overbooked or had become outrageously expensive due to the limited supply and inflated demand. Their living room was empty, they needed cash, and there were plenty of people looking for affordable places to sleep in conjunction with the conference. Chesky and Gebbia reached out to their friend and former roommate, Nathan Blecharczyk, a Stanford Computer Science graduate.

The trio threw together a website and called it “AirBed and Breakfast”. For a small fee (cheaper than a hotel room, but enough to help make rent), conference goers could sleep on an air mattress in their living room and then be served a basic breakfast afterwards. They sent emails to various design blogs to drum up some interest, and a woman from Boston, a father from Utah, and a student from Arizona State took them up on the offer. After some initial awkwardness, the experience ended up being intimate and human in a way that hotels very rarely are. The conversations, shared meals, and interactions with complete strangers convinced Chesky and Gebbia that they might be onto something bigger than a short-term fix for their rent problem.

At the time, the idea was highly unusual. There were some message boards and forums where people informally rented rooms for short-term stays, but no established platform that turned the idea into a repeatable, trust-driven business. People wanted to travel cheaply, and others had extra space. The challenge was making the exchange trustworthy and getting travelers to give up the comforts of traditional hotels in favor of sleeping on a stranger's couch.

They formally launched the company in the summer of 2008. As far as timing the launch of a startup with favorable economic conditions goes, it’s difficult to pick a worse time than what the Airbnb founders did. To say that the global financial system was under strain would be the understatement of the century, and unsurprisingly, venture capital was incredibly difficult to come across. It’s important to keep in mind that the founders were bootstrapping the entire company, and unless they could find a way to generate some cash quickly, their business simply didn’t have a future. The search for investors was going nowhere, and the situation was getting close to desperate. Luckily, the presidential election was fast approaching.

Neither Barack Obama nor John McCain had promised to provide seed capital to startups focusing on short-term rentals should they win, so why does this presidential election matter?

It matters because Gebbia and Chesky had a plan to make some money in a way that can only be described as unconventional. They put their design degrees to use and created novelty cereal boxes branded as “Obama O's” and “Cap'n McCains” that they sold online. It served two purposes: the first being that Airbed and Breakfast managed to scrape together much-needed cash. They sold enough boxes to generate $30,000 in revenue, which gave the company and its founders some breathing space. But it also served a different purpose: it generated buzz around Airbed and Breakfast.

The cereal boxes were featured in articles, media outlets, and news stations featured them in puff pieces about the election. All boxes were branded with Airbed and Breakfast, and the company got plenty of attention in the weeks surrounding the boxes' release. The Democratic National Convention was held in Denver that year, and thanks to the cereal boxes, hundreds of visitors slept on air mattresses in strangers' living rooms.

The cereal boxes for Obama O's and Cap'n McCains

The cereal boxes for Obama O's and Cap'n McCains

In the early months of the company, the site gained occasional traction, mostly during large events or conferences in San Francisco when hotels were overbooked. But the buzz was short-lived and inconsistent, and if they wanted to get the company off the ground, they needed three things: real momentum, advice, and money.

In these early months, the site gained occasional traction, mostly during large events or conferences when hotels were overbooked in cities like New York and San Francisco. But growth was slow and inconsistent, and while the three co-founders had plenty of design and technical expertise to go around, they were novices when it came to building a company. In 2009, the founders applied to the startup incubator Y Combinator and were accepted into their winter batch on one condition: that they drop the focus on air mattresses and go after the broader travel market.

Airbnb’s co-founders at Y Combinator

Airbnb’s co-founders at Y Combinator

The program provided them with much-needed seed funding (novelty cereal boxes will only go so far), but more importantly, it provided them with invaluable mentorship and advice. During the three-month program, which had given them some much-needed breathing space, they began to refine the product. One of the key insights came from looking at user data and seeing how users were interacting with listings on the website. Many of the photos advertising listings were of poor quality, taken with bad cameras in even worse lighting. Unsurprisingly, these listings saw far fewer bookings than ones where the host had put some thought and effort into their photos.

So, what to do? Take a hands-on approach. Using some of the money from the investment, Chesky and Gebbia flew to New York, rented a professional camera, and went around and visited hosts in person. These meetings served a dual purpose: getting in-person feedback and insights from hosts, but more importantly, they instantly upped the quality of the listings. Revenue and bookings in New York doubled shortly after the new photos were uploaded.

This approach was incredibly impactful. So much so that in the months following their visit to New York, they would pay freelance photographers to go around the country and take high-quality photos of new listings. Co-founder of Y combinator, Paul Graham, talked about about the iniative in an essay titled “Do Things that Don't Scale”, and later said this about the visit to New York: “(Airbnb) now seems like an unstoppable juggernaut, but early on it was so fragile that about 30 days of going out and engaging in person with users made the difference between success and failure”.

By mid-2009, the company was out of survival mode and had started gaining some real traction. Blecharczyk, the co-founder and computer science grad from Stanford, had improved the website, Chesky and Gebbia designed a user-friendly UX, and the number of people hosting on the site was steadily increasing. The focus on air mattresses and sleeping on a stranger's floor had been quirky and charming in the beginning, but it was quickly becoming apparent that the company would need to change its messaging and positioning in order to grow.

The name was shortened to Airbnb, and the concept quickly expanded. Hosts now listed spare rooms, apartments, entire homes, and novelty stays. In the summer of 2009, the company finally managed to attract a major investor: Sequoia Capital. The prestigious VC firm led a seed round of around $600,000, providing the Airbnb team with the crucial capital needed to take the next steps of growth.

The Airbnb website in the early 2010s

The Airbnb website in the early 2010s

The company's previous issues with raising cash, mostly due to the Great Recession wreaking havoc on the world's financial system. But after the crucial investment by Sequoia, the financial crisis indirectly turned into an invaluable set of circumstances for Airbnb.

Many regular Americans found themselves strapped for cash and looking for some extra income due to the financial realities at the time. As a result, most of Airbnb's early growth was fueled by people who just a couple of years earlier would never have considered renting out a spare room, and by travelers looking for cheap alternatives to hotels. While it might not have made a direct difference between someone losing their home or not in the aftermath of the crisis, the amount of people looking to make some well needed money on the side helped the company grow in a way that more than likely would have taken much longer in a more favorable economic climate. This and the fact that people were still looking to travel, but doing so in a more budget-conscious way, proved to be a match made in heaven for Airbnb.

2010 continued down the beaten path, and Airbnb was growing rapidly. With Sequoia as backer, and with more and more people becoming aware of Airbnb, the company seemed to be in a perfect position to grow. While the following sentence might sound somewhat corny, or like something picked up from a thread from an entrepreneurial coach on social media – looking back at it, it doesn't make it any less true.

Airbnb wasn't just building another platform. They were changing people's behavior and routines when it comes to travel.

By offering something different, more personal, and at a cheaper price, it instantly changed the way people wanted to stay when visiting a new city. Instead of sleeping in impersonal hotel rooms in tourist areas, travelers could live like a local at much lower prices. For many users, this was the charm of it all – a far more unique experience than what was offered by traditional hotel chains. For many, there was no looking back after their first stay in an Airbnb.

Just roughly four years after hosting its first guests, Airbnb passed 1 million nights booked in February 2011. A way of traveling that had only circulated in niche online communities and among “those in the know” was now well and truly making a name for itself among the general public. While most hosts still rented out regular apartments or spare rooms, it started popping up accommodations where the place itself became the destination. Do you want to sleep on a houseboat in Amsterdam? In a treehouse in Costa Rica? Perhaps in an authentic castle in the French countryside? Airbnb had it all. The days of air mattresses were long, long gone.

By late 2012, Airbnb had listings in over 190 countries and had facilitated over 10 million stays.

Bookings had increased 10x in 9 months, numbers that for the hospitality industry seem to be pulled out of a hotel director's deepest desires. But how could they grow so quickly? The reason for this is, of course, self-explanatory: Airbnb had no operating costs associated with adding a new place to stay. There was no investment that had to be made in a building, refurnishing, interior design, fire inspections, kitchens, TVs, ice makers, staff, and all of the thousands of other things that add up when traditional hotel chains want to open a new location.

We're going to talk about this in much further detail in a little while, but as you're now highly aware of, Airbnb didn't have to spend a penny in order to expand to a new city or a new neighborhood. All it needed was someone with a spare room who wanted to make a little money on the side.

The idea that seemed somewhat absurd just a few years before was catching on globally. By late 2012, Airbnb had listings in 192 countries and had facilitated over 10 million overnight stays. Venture capital continued to flow in, and Airbnb raised capital at a valuation of roughly $2.5 billion. Brian Chesky was now the CEO of a company that was threatening to permanently disrupt the hotel industry. Not a bad result for a company that four years earlier had been founded to help make rent.

The venture capital firms that invested in Airbnb during this time are too many for us to mention by name. So instead, we're going to shine a light on arguably the most impactful investor in Airbnb: Peter Thiel.

Thiel is a person who in these circles needs no further introduction, but if you haven’t heard of him before, he co-founded PayPal and Palantir, was one of the first investors in Meta and Spotify, and he's one of the most famous venture capitalists out there. Through his VC firm, Founders Fund, he invested $150 million in Airbnb in 2012. When asked later what the first piece of advice Thiel provided to Airbnb and its founders, Chesky responded with the following: "Don't f@#k up the culture.". His investment had been made partly because of its internal culture (and because of the astronomical growth, let’s not mince our words here), and protecting it was of the utmost importance. Thiel was convinced that it was more or less unavoidable for a company to harm its culture as it grew, and Chesky took the advice to heart.

But what was the internal culture like? While all employees are going to have a different experience (one that most likely differs from the founders'), when doing research for this piece, one thing has become apparent: Airbnb really set out to change the way people thought about travel.

Again, we’re teetering dangerously close to falling over the edge of fluffed-up marketing speech of “crafting experiences” and “genuine connections”, and we would have rolled our eyes if it in large part hadn’t been the truth. When reading and researching what the founders have said about Airbnb, they all seem incredibly genuine in wanting to help people experience a new way to travel. Internally, it was referred to as creating a sense of “belonging”. When the new Airbnb logo was revealed at a major rebranding event in 2014, Chesky wrote and released a public manifesto about the meaning behind it. He said that the new logo represented the universal human yearning to belong and how he felt that modern travel had become impersonal and transactional.

Even if you’re in the camp of skeptics who believe that it's difficult for a software company’s logo to represent something so abstract, that's not the point here. The point is that this was the genuine guiding star and the motivation fueling Airbnb's leadership, and that it worked. Many travelers have proved that they would rather stay in a cozy London apartment in an area where locals shop, eat, and live rather than in areas filled with tourist traps devoid of a local connection and “vibes”. The founders genuinely saw this as their mission – to provide travelers with a way to turn their accommodation into a memorable part of an experience instead of just a place to sleep.

But while there had been some hiccups and negative PR since its founding, the first major issues for Airbnb were looming just over the horizon.

These problems came in the form of regulations and lawmakers. Despite its explosive growth, Airbnb up until this point had managed to stay under the radar in terms of regulation. The entire concept of Airbnb was so new. But in cities like New York, San Francisco, Paris, Berlin, where housing supply is woefully inadequate, local authorities began scrutinizing Airbnb’s impact on housing and whether hosts were violating laws governing traditional short-term rentals.

The first major blow came in the fall of 2014, when the Attorney General in New York (Airbnb’s biggest market) issued a damning report claiming that most Airbnb rentals in New York City were illegal sublets that violated short-term rental laws. The report noted that a handful of commercial operators were using Airbnb to run de facto hotels with dozens of apartments, contributing to housing shortages.

In other words, New York's regulators accused Airbnb of enabling an underground hotel industry, avoiding taxes, and driving up rent prices. There are plenty of regulations and laws that hotels have to follow (we have more interesting things to discuss than zoning laws), but basically, the argument was that Airbnb was more or less operating as a hotel, but without the regulatory oversight.

Around the same time in San Francisco, Airbnb’s hometown, residents upset about rising rents and housing scarcity placed a referendum on the November 2015 ballot, which would have severely restricted short-term rentals by capping them at 75 nights per year.

Airbnb fought back hard. The company poured roughly $8 million into a political campaign to defeat the proposition, blanketing the city with ads portraying regular people who shared their homes to make ends meet. On Election Day, Airbnb's side won, but at this point, the writing was on the wall. The days of Airbnb operating as purely a feel-good supplier of human interaction were over. It was now a major player in the hospitality industry, regardless of whether it saw itself as one or not. From now on, regulatory battles are going to be a recurring theme in Airbnb’s story.

In the modern context of Airbnb, these questions about housing supply and affordability have led to consistently negative PR, something which the company has been unable to shake to this day. Rightly or not, many residents of cities dealing with the problems of short housing supply and high inflow of tourists see Airbnb as one of the main contributors to the issues.

In Paris, Barcelona, Berlin, New York, San Francisco, Los Angeles, and many other cities, officials grappled with how to reconcile Airbnb's popularity with housing laws and hotel regulations. Some places embraced home-sharing with light rules, but others imposed strict limits. In late 2016, New York State passed a law imposing hefty fines on hosts who advertised illegal short-term rentals, dealing a blow to Airbnb's New York listingstheguardian.com. Paris started levying fines for unregistered listings. Even entire countries like Japan instituted new rules (leading Airbnb to briefly remove thousands of listings there in 2018 to comply).

The hotel industry, which largely had dismissed Airbnb as something more akin to a gimmick than a real threat, launched full-scale attacks by funding anti-Airbnb research and lobbying for stricter laws against short-term rentals. Airbnb fought back in the only way it could, and started hiring lawyers, initiating PR campaigns, and doing lobbying work for its own interests.

At the same time as Airbnb was fighting regulatory battles, in mid-2015, it raised a massive funding round that reportedly valued it around $25 billion, making it one of the world's most valuable private tech companies. By September 2016, another $555 million investment led by Google Capital and others bumped Airbnb's valuation to $30 billion, officially vaulting it above the market cap of hospitality giants like Hilton and Marriott.

The company had now raised well over $3 billion since its inception. It opened offices worldwide, and was now in nearly every country in the world. By 2016, Airbnb claimed to have over 3 million listings and more rooms available than the top five hotel chains combined, and showed no signs of slowing down.

By now, Airbnb had evolved far beyond its couch-surfing origins and was looking to keep expanding. It was no longer just interested in travel accommodations, but it wanted to be a one-stop shop for travel. In 2016, Chesky announced the launch of Airbnb Trips and Experiences, in which the company offered guided tours, classes, and activities hosted by locals. The vision was that Airbnb could handle your entire trip, from lodging to activities, and even, someday, flights (the company explored flight booking partnerships, though it never launched an airline service).

It acquired a London-based startup to kickstart Experiences, curating everything from cooking classes in Tuscany to street art tours in Brooklyn. Later, in 2019, Airbnb made another strategic acquisition, and its largest one to date. The company bought HotelTonight, a popular app for last-minute hotel bookings, for over $400 million. By now, Airbnb wanted to offer users the opportunity to book every kind of stay, regardless of whether it was at a boutique hotel in Florence or a spare room at an old lady's house in Wichita.

By 2019, Airbnb's trajectory looked unstoppable. The company was profitable on an EBITDA basis and inching toward full-year net profit. It had 7 million+ listings in 100,000 cities, and a valuation in the range of $31 billion. What had been rumored for years was finally confirmed in September 2019, as the company formally announced it planned to go public in 2020. In hindsight, perhaps not the best timing for a company built on travel.

In January 2020, murmurs of a virus spreading in China were a distant concern, and Airbnb was furiously getting the company ready for the IPO process. But as we all know, March was about to turn the entire world upside down. Governments imposed lockdowns and travel bans, and suddenly the world's flights were grounded and the entire hospitality industry found itself in its deepest crisis ever. For Airbnb, whose business relied entirely on people going places and staying in each other's homes, it was an existential concern. Within a matter of weeks, an avalanche of guest cancellations wiped out months of bookings.

Revenues dropped a shocking 80% in two weeks, and the company which only two months before had announced its plans to go public, was suddenly staring down the prospect of losing over half a billion dollars in 2020.

By April, Chesky and the leadership knew that survival meant cutting costs to the bone. Chesky announced that the company had no choice but to lay off around 1,900 employees. While these types of moves are heartbreaking for the people affected, there was little that could be done. Airbnb’s 2020 revenue was forecast to be less than half of 2019's. As the layoffs commenced, the company also raised $2 billion in emergency capital from investors to pad its balance sheet.

The rebound, once it began, took shape faster than anyone expected. By September 2020, Airbnb’s bookings, while still down year-over-year, were recovering far better than hotel bookings. The flexibility of the platform, with its wide geographic spread into small towns and remote locales, proved to be a lifeline. That fall, Airbnb even managed to post a surprise quarterly profit (on an adjusted basis), a remarkable turnaround from the freefall in the spring.

Confidence was returning, and with it, the revived plan for an IPO. In early December 2020, Airbnb went public on the Nasdaq. The IPO can only be described as nothing short of euphoric for the company and its investors. Priced at $68 a share, Airbnb’s stock opened at double that on its first day, shooting the company's valuation to around $100 billion – more than Marriott, Hilton, and InterContinental combined.

Airbnb’s first “office” in Chesky and Gebbias apartment in San Francisco

Airbnb’s first “office” in Chesky and Gebbias apartment in San Francisco

Flush with new capital and a soaring stock, Airbnb entered 2021 cautiously optimistic. Travel was still far from normal, but the darkest days were over. Airbnb was now looking at profitability as the next step. Travel was rebounding and far surpassing 2019 levels, as the world opened back up and people wanting to make up for their lost time swarmed to book trips. In Q3 of 2021, Airbnb posted its first-ever net-positive month on a GAAP basis. This is what Brian Chesky had to say about the results:

Before we get into the modern workings of Airbnb and what’s next for the company, we’re going to take a deep dive into their financials, their capital allocation, competitive advantages, competition, and just how much free cash flow a company in the hospitality industry without any tangible assets can generate.

Airbnb has been profitable every year since 2021. The profitability of the company has been driven by a leaner cost base post-2020 and higher revenues per booking. Airbnb drastically cut expenses in 2020, which made its cost structure much leaner going into 2021. As a result, when demand for travel returned, margin expansion was dramatic, with high booking rates during the travel rebound boosting revenue.

Given the company's marketplace model, which inherently makes it capital light, gross margins have remained extremely high since at over 80% for every year since the IPO. For FY 2024, it sat at 83%.

Unlike traditional hospitality companies, as we've been over numerous times already, Airbnb doesn’t own or lease the properties listed on its platform. Instead, it acts as a digital marketplace connecting hosts and guests. This model drastically reduces capital expenditures, which are usually a major drag on free cash flow (FCF) in asset-heavy businesses like hotels. Since Airbnb doesn't need to build, maintain, or furnish properties, most of its operating cash flow flows directly through to free cash flow.

This is a direct result of a favorable working capital model. Airbnb collects payments from guests at the time of booking, often well in advance of the stay, and only pays out hosts after the check-in date. This timing advantage gives Airbnb a significant float, where it can hold and earn interest on the money for days or weeks. It effectively makes working capital a source of cash, unlike in many other industries.

With relatively low infrastructure needs, Airbnb's capital expenditures are minimal and often just cover office space, equipment, and internal tools. This keeps a large portion of operating cash flow unencumbered, boosting cash conversion rates. In combination, these elements enable Airbnb to convert a high percentage of its earnings into free cash flow. For FY 2024, FCF stood at a staggering 40% of total revenue. This visualization showcases just how strong the generation is:

Airbnb's FCF growth between 2019-2024

Airbnb's FCF growth between 2019-2024

Airbnb's brand is one of its strongest moats. It's practically a household name, and people even use it as a verb when telling their friends where they're staying for their upcoming summer vacation. This brand power lowers customer acquisition costs, as Airbnb is by now the default choice for millions of travelers looking for a place to stay.

At the same time, it also attracts people to become hosts, helping to expand Airbnb’s offerings to users. There is a textbook two-sided network effect at play here: more hosts listing homes brings more guests, and a large guest user base attracts more hosts to join. Airbnb’s active listings grew to 7 million by 2023, the largest globally in the home-rental category, which further entrenches its leadership. The company often cites its global network, where demand drives supply and vice versa, as a core competitive dynamic:

Airbnb's inventory of unique accommodations (from treehouses and tiny homes to villas and urban apartments) is a differentiator. While competitors also list vacation rentals, Airbnb is known for more “authentic” home-stay experiences and a smorgasbord of quirky options. Its host community is a moat in itself. Additionally, Airbnb benefits from high switching costs on the supply side: an established Airbnb host with dozens of positive reviews on the platform has a strong incentive to keep using it as their reputation doesn't directly port to other sites easily.

Of course, Airbnb faces formidable competitors in online travel. Booking Holdings, in particular, has leveraged its dominance in hotels to boost its alternative accommodation offerings. Booking is the leader in hotel bookings, and has a massive user base that it can cross-sell home rentals to. However, after doing some Peter Lynch-inspired research and looking at some top destinations in Europe and North America, it became apparent that many short-term rental owners choose to list their properties with both Booking and Airbnb in order to increase their reach.

How empirical and trustworthy is this improvisational research? Well, not enough to do an entire sector analysis on. But the fact that Booking and other sites are no longer content with only listing hotels and starting to encroach on Airbnb’s “territory” sows doubts around Airbnb’s dominance over the sector.

Nonetheless, as of 2025, Airbnb's core moats of brand recognition, network effects, and unique inventory are intact and growing. The company's challenge will be to maintain these advantages while expanding into new products, while maintaining its growth rate, and facing increasing competition.

The ever-looming threat of regulatory crackdowns is one of Airbnb’s most pressing headaches. Many cities popular with tourists, concerned about housing affordability and supply, have instituted laws that impose strict rules on short-term rentals. For example, New York City’s Local Law 18 (effective 2023) requires hosts to register and bans most short stays in apartments, sharply limiting Airbnb's largest U.S. urban market.

In Europe, tourist hotspots like Barcelona, Florence, and Venice have also restricted new Airbnb listings to combat over-tourism. Airbnb often opposes or negotiates such rules, but compliance adds friction, costs, and has so far constrained supply. Airbnb has also been hit with tax-related disputes throughout the years, and in 2023, it agreed to pay €576 million in back taxes to settle a long-running Italian investigation for failing to collect taxes on behalf of hosts. This is just one example of how operating in tightly regulated markets can become incredibly costly should Airbnb fail to adhere to local laws and regulations.

Despite the aforementioned network effects of demand driving supply, this becomes impossible in cities where the amount of short-term rentals available is tightly regulated. In smaller yet immensely popular cities like Venice, ensuring an adequate supply of quality hosts in high demand is simply not feasible during peak season. This, in turn, leads to travelers choosing to go somewhere else for their bookings. Airbnb's business is also highly seasonal, with Q3 typically the biggest quarter by far, and Q1 the smallest, posing all of the classic challenges companies in the hospitality industry have.

Perhaps the most notable thing about Airbnb's capital allocation strategy has been its initiation of stock repurchases. In mid-2022, the board authorized a buyback program, and by the end of 2023 the company had repurchased shares at the tune of $3.75 billion. It continued in 2024, where the company bought back another $3.4 billion. In total, Airbnb has spent over $7 billion on buybacks, reducing its fully diluted share count from ~694 million at the end of 2021 to ~658 million at the end of 2024. The company has signaled that this is going to continue to be a core focus going forward.

But in a way, these share buybacks haven't been the classic driver of value creation in the traditional sense. This is because of Airbnb's stock based compensation (SBC) to its employees. Like many other tech companies, Airbnb relies partly on SBC to recruit and retain talent. While this is a massive perk for its employees, it also dilutes the free float of shares available, inherently making each share worth less. SBC expense has been running at roughly $1 billion per year since the IPO, making the decision to allocate billions to repurchase shares largely aimed at neutralizing these dilution effects.

Airbnb invests heavily in its platform and new features, primarily through research & development (R&D) spending. In 2024, the overall costs for R&D sat at just north of $2 billion. However, much of the company's success can be attributed to having an innovative and cutting-edge platform with top-notch user experience, and management appears willing to invest significantly in order to maintain this.

After going public, Airbnb hasn't conducted any major M&A deals at the scale of its purchase of HotelTonight in 2019. Its first and so far only acquisition since going public came in 2023 when it acquired a small AI startup called GamePlanner focused on AI-driven travel itinerary planning. However, given that Airbnb's reserves sit at roughly $10 billion spread across short-term investments and cash, should an opportunity present itself, it'll be able to act on it.

Many of the hallmarks of a company whose stock should be performing well. But there are plenty of factors at work here, and while we're not financial analysts or claim to speak for the broader market as a whole, we're going to take a look at some of the doubts and roadblocks are partially to blame for the company's performance.

One of the reasons is the fact that lofty expectations were priced in at the IPO. In late 2020/early 2021, investors were extremely bullish on tech and “reopening” stocks, which propelled Airbnb's market cap to ~$100 billion. This left little room for upside surprises. In hindsight, Airbnb's subsequent growth, while impressive, largely met (or in some cases fell slightly short of) those initial high expectations, rather than dramatically exceeding them. In plain English: many simply considered the stock to be overvalued after its debut.

The period saw major macroeconomic shifts. High interest rates led to a deflation of growth stock valuations across the board. Airbnb's flat stock is partly a casualty of this valuation compression rather than a verdict on its operational performance. Additionally, periodic recession fears and volatility shifted investors towards safer assets at times, and Airbnb, a discretionary travel stock with a short trading history, was more volatile. The broader markets eventually bounced back, but Airbnb underperformed on a relative basis, even as its business improved. In essence, Airbnb's multiple contracted even as its earnings grew, resulting in a wash for the stock. All told, Airbnb of mid-2025 is a much healthier company than in 2020, but the earnings multiple attached to it by the market is far lower.

To all of the above, we can add the competitive and regulatory overhangs, the growing competition, the occasional PR disaster driven by guests doing something unhinged, and we have found at least part of the reason why Airbnb's stock has stayed grounded while the company has taken off. Investors today see Airbnb as a more mature business rather than a growth case. It has a huge global platform, generating significant free cash flow, and competitive advantages, but also faces growth normalization and external challenges. A great company isn't always a great five-year stock.

But what will the future hold? In terms of stock price, we'll let the market decide that. In terms of Airbnb's plans? We're going to listen to Brian Chesky.

Airbnb is going to continue to do its best to maintain its growth in the short-term rental space, but it's also looking to expand. In the words of Brian Chesky, Airbnb wants to become an app for short-term rentals and bookings of not just apartments, but for everything.

In May 2025, Airbnb unveiled a significant expansion of its platform with the relaunch of Airbnb Experiences (originally launched in 2016) and the introduction of Airbnb Services, in which the company aims to offer guests access to amenities such as in-home chefs, spa treatments, and personal trainers. In the words of Brian Chesky himself, he wants to build “the everything app”. So while the history of Airbnb is firmly rooted in short-term rentals, management wants the future to be far more diversified than that.

So, that's the story of Airbnb. It's a company which has come to be one of the dominating forces in the hospitality industry without owning and operating a single piece of property themselves. But perhaps the most important and impressive thing about Airbnb as a whole is that it has fundamentally changed how people travel. While the rent problems and air mattresses are a thing of the past, the experience of those first three guests in Chesky's and Gebbia's living room is what has helped Airbnb establish itself as a natural part of people's travel routine. Airbnb's motto is “Belong Anywhere”, and while it might be possible to do that in a hotel, the company has proven that it's far easier to do when living like a local on your travels.