AMDP Investment Proposal - AIRBNB

TO: Clark Hansen, CEO, AMDP

FROM: Marc Morales, R&D Analyst, AMDP

DATE: October 21, 2022

SUBJECT: Investment Proposal: Airbnb

 

 

As a member of Anima Mundi Development Partners’ (AMDP) research and development team, my role is to find the next best investments that align with the company’s standards. This week’s work uncovered a promising company known as Airbnb. I will present to you this company’s history, mission, and financials, but, before diving into Airbnb, it’s important to address AMPD’s standards set towards any potential investment. These four standards include:

• Triple Bottom Line

• Corporate Social Responsibility

• Social Enterprise

• Carbon Footprint 

AMPD’s Investment Standards

Triple Bottom Line

Triple bottom line is a sustainability framework that aims to look beyond the financial success of a company. “As a result of the triple bottom line theory and application, some businesses began to realize the connection among environmental health, social well-being and the organization’s financial success and resilience.” (University of Wisconsin). As a way to measure, triple bottom line is broken up into three P’s:

• People. The people component refers to all of the stakeholders of the company – employees, customers, and communities. 

• Planet. Consumers are more aware than ever of the consequences business decisions can have on the environment, especially concerning global issues. The business norm in today’s setting is to adopt practices that reduce your environmental impact.

• Profit. There are economical benefits when a company is in operation and doing well. These include paying taxes, creating employment opportunities, and provoking innovation.

Corporate Social Responsibility

The company’s corporate social responsibility (CSR) places accountability on organizations to meet the needs of stakeholders and the public, and, vice versa, stakeholders and the public are also required to hold organizations accountable. (University of Wisconsin). To show dedication to CSR, your company can become a B Corporation in which you're legally obligated to consider the impact of business decisions on every single stakeholder.  

Social Enterprise

Social Enterprise “applies innovative business practices and managerial disciplines to drive sustained, high-impact social change”. (Harvard Business School). A social enterprise, like all other businesses, intends to maximize their profit while also making a positive societal impact.

Carbon Footprint 

Carbon Footprint is best described as “the sum total of all the greenhouse gas emissions that had to take place in order for a product to be produced or for an activity to take place.” (Mulvaney). The most commonly emitted greenhouse gasses are carbon dioxide, methane, and nitrous oxide. It’s important to reduce the use of these greenhouse gasses because excess emissions directly impact the health of our environment. Businesses are able to measure their carbon footprint by tracking the emissions of their activities on an annual or per-product basis. A list of activities companies commonly track include: energy usage, business travel, and product shipping.

Airbnb – History, Offerings, and Performance in the Industry

Airbnb:

Airbnb was founded in 2007 as an online marketplace for short-term stays. The intention of the company is to create a community between guests looking for reasonably priced accommodations and hosts hoping to make extra money off of their spare rooms, homes, or even private islands. When you’re using the Airbnb platform, you’ll notice the wide range of offerings that fit different needs. From small remote towns to large populous cities and with over six million active listings worldwide, the company is guaranteed to have a listing that fits both your budget and personality. (Airbnb).

The founders:

Brian Chesky and Joe Gebbia came up with this business idea after receiving a notice of a 25% increase in the rent of their San Francisco apartment. There was an upcoming industrial design conference and accommodations had sold out for local hotels. In an effort to make some quick cash to cover costs, Gebbia came up with the idea to offer their airbed up for booking as a bed and breakfast. After this experience, Chesky and Gebbia realized that they had a business opportunity in their hands to help people book their spare rooms. (Rothaermel).

Airbnb Plus:

On top of the company’s typical offerings, you could opt to book one of their more premium stays with Airbnb Plus. To qualify as an Airbnb Plus, the host must offer an entire place or private bedroom with a private bathroom, maintain at least a 4.8 rating, have zero canceled reservations, and accept above 95% of bookings. (Ditaranto). Airbnb Plus listings also go through an in person inspection to ensure the stay meets the company’s standards. 

Airbnb Experience:

Airbnb’s goal is to build an “end-to-end travel platform” which goes a step further than traditional hospitality companies, like Marriot or Hilton. The company is focused on helping the guests with their three main traveling questions: where to stay, what to do, and how to get there. (Airbnb). Whether you’re a local or visitor, Airbnb’s Experience offering allows you to find fun activities to enjoy while you’re in the area. To give you an idea of the company's offerings, I found a Kokedama plant making workshop and Los Angeles’s secret painted stairs tour all with a quick search on the platform.

Growth within the Industry

Airbnb’s main competition stems from companies with similar offerings in the hospitality industry such as Marriott and Hyatt. In comparison to these traditional competitors within the industry, Airbnb faces little constraints in growth. For Marriott to grow operations, the company must take significant upfront investment to purchase real estate, build, and hire workers. 

Without the inventory constraints tied to Airbnb, the digital platform is able to grow at a quicker rate than competitors like Marriot. Airbnb is experiencing financial success as the revenue in the 2nd quarter of 2022 rose 58% from the previous year to $2.1 billion, and the company’s earnings per share for the quarter was 13 cents above analyst expectation. (Pitt). 

Airbnb’s Initiatives

Airbnb takes pride in their positive environmental impact. The company leans on a study conducted by the Cleantech group (CTG) which shows home sharing significantly reduces greenhouse gas emission and water use and encourages both guests and hosts to practice a more sustainable use of resources. 

According to the study, “In North America alone, Airbnb guests use 63 percent less energy than hotel guests - that's enough energy to power 19,000 homes for one year.” (Airbnb). To put things into perspective, between North America and Europe, Airbnb guests have helped save the equivalent of 1,380 olympic sized pools of water and 233,000 cars on the road. On top of their environmental initiatives, the company created a fund to better serve the stakeholders and give back to the community that contributes to their business’s success. With the fund, Airbnb plans to allocate $100 million dollars to “organizations that support communities around the world.” (Airbnb). 

Industry Opinions

According to Samira Zare and Sara Dolnicar, both of whom are professors in the department of tourism at the University of Queensland, Airbnb has a history of helping communities who face unexpected needs for rooming. Airbnb has set up a Disaster response tool that allows individuals who face homelessness as a result of a natural disaster to connect with hosts who are willing to offer their space at a reduced cost or even for free.  Zare and Dolnicar claim that “Airbnb is not only the pioneer of the large-scale trading of short-term rentals among ordinary people, but also the pioneer of altruistically-motivated large-scale space donation.” (Zare and Dolnicar). With the analysis of both professors, Airbnb contributes greatly in comparison to their competitors when it comes to corporate social responsibility. 

Ron Bekkerman, a publisher at the Harvard Business review, analyzed the impact of Airbnb’s on a city’s economic development. Bekkerman’s research found a positive correlation between cities with short-term housing rental and economic prosperity of the city. “On average, a 1% increase in Airbnb listings led to a 0.769% increase in permit applications.” (Bekkerman). This data suggests that Airbnb’s presence in a city’s given market can boost tax revenue. Meanwhile, the restriction of short term rentals leads to a negative impact on a community’s economic standing based off the trends shown in the 15 Metropolitan areas analyzed. 

Recommendation

Airbnb has a history of being very adaptable in their market and innovative in addressing any issues in hand. In the company’s infant stages, they were struggling with booking rates, so, to address the problem, Airbnb created a sleek website and offered to take professional photos for the hosts. The company's adaptability to their market ensures continued growth. With the growth and the company's initiatives in mind, I highly recommend Airbnb as an investment for AMDP.

 

 

Citations

About Us. Airbnb Newsroom. (2022, September 30). Retrieved October 16, 2022, from https://news.airbnb.com/about-us/ 

About: Social enterprise: Harvard Business School. Social Enterprise. (2022, July 29). Retrieved October 16, 2022, from https://www.hbs.edu/socialenterprise/about/ 

Airbnb experiences update. Airbnb Newsroom. (2019, April 30). Retrieved October 16, 2022, from https://news.airbnb.com/airbnb-experiences-update/ 

Airbnb's $10 million investment in communities. Airbnb. (2021, April 22). Retrieved October 16, 2022, from https://www.airbnb.com/d/communityfund 

Babiak, K., Dolnicar, S., Fairley, S., Gardiner, S., Cvelbar, L. K., Liu, L., MacInnes, S., Randle, M., Reinhold, S., Vavpotič, D., Briel, D. von, Xiang, Y., & Zare, S. (2021, April 6). Airbnb's space donation initiatives – before, during and after COVID-19. Airbnb Before During and After COVID19. Retrieved October 16, 2022, from https://uq.pressbooks.pub/airbnb-978-1-74272-321-1/chapter/airbnbs-space-donation-initiatives-before-during-and-after-covid-19/ 

Ditaranto, J. (2021, March 8). Everything to know about airbnb plus, including how listings are vetted, if they cost more, and if it's worth it. Insider. Retrieved October 16, 2022, from https://www.insider.com/guides/travel/what-is-airbnb-plus 

Mulvaney, K. (2022, June 23). What is a carbon footprint-and how to measure yours. Environment. Retrieved October 16, 2022, from https://www.nationalgeographic.com/environment/article/what-is-a-carbon-footprint-how-to-measure-yours 

New Study reveals a greener way to travel: Airbnb community shows environmental benefits of home sharing. Airbnb. (2014, July 31). Retrieved October 16, 2022, from https://www.airbnb.com/press/news/new-study-reveals-a-greener-way-to-travel-airbnb-community-shows-environmental-benefits-of-home-sharing 

Pitt, S. (2022, August 3). Airbnb stock slumps despite record-breaking bookings. CNBC. Retrieved October 16, 2022, from https://www.cnbc.com/2022/08/02/airbnb-abnb-earnings-q2-2022.html 

Ron, B., Cohen, M., Kung, E., Maiden, J., & Properpio, D. (2021, November 17). Research: Restricting airbnb rentals reduces development. Harvard Business Review. Retrieved October 16, 2022, from https://hbr.org/2021/11/research-restricting-airbnb-rentals-reduces-development 

Rothaermel, F. T. (2019, February 23). Airbnb, Inc. . Harvard Business Review. Retrieved October 15, 2022, from https://store.hbr.org/product/airbnb-inc/MH0058 

A simple explanation of the triple bottom line: University of Wisconsin. University of Wisconsin Sustainable Management Degree. (2022, April 11). Retrieved October 16, 2022, from https://sustain.wisconsin.edu/sustainability/triple-bottom-line/