Airbnb has no ‘direct competition’: analyst

Cowen Managing Director Kevin Kopelman joins Yahoo Finance to break down the unprecedented growth from Airbnb that has led to an upgrade by Cowen, the evidence that supports this upgrade, and the state of competition in the hospitality industry.

Video transcript

BRIAN SOZZI: Big call over at Cowen on Airbnb. The team there upgraded their rating to outperform and slapped the stock with a $220 price target, up from $160 previously. Cowen analyst Kevin Kopelman joins us for our call of the day. Kevin, really good note here by you and your team. Take us through it. Why are you bullish on Airbnb?

KEVIN KOPELMAN: Thanks a lot. Good to be here. So what we're seeing here is that alternative accommodations, which Airbnb is leading, has had an unprecedented growth in the lodging mix during the pandemic. And what we found from our work is that we believe the step-up of alternative accommodations is going to be a permanent shift.

So you're not going to see a reversion back away from alternative towards hotels during this recovery. Instead, you're going to see Airbnb and others in the space continue to show strength in the coming years. And that was really the driver behind this upgrade today.

JULIE HYMAN: Kevin, it's Julie here. What gives you that confidence? Have you seen a commensurate decline that's persisted in hotel traffic, for example? I mean, you know, I think some people certainly miss the sort of more full service that hotels provide, but a lot of people like just go and being able to be in a house or what have you. So what are the data points or what's the evidence that you're seeing out there?

KEVIN KOPELMAN: So there are a couple of indicators. First is just the results that Airbnb and others are putting up. So we saw the initial shift towards vacation rentals and alternative in 2020. And then in 2021, that has only continued. And so we estimate that alternative accommodations have gone from about 24% of lodging dollars globally prior to the pandemic up to about 33% today.

The second one is we have a proprietary tracking survey that we do of US consumers. And what we found-- we asked them, where are you planning to stay in the coming year. And what we found is that expectations for short-term rental usage over the next year are near an all-time high. So what travelers are saying is, yes, we know we've been taking these trips to homes over the past year, but we're going to do even more of that in the coming year.

Now I want to make sure I point something out. So we don't think this is doomsday for hotels, by any means. We're pretty bullish on the overall travel recovery. And we also think that travelers are going to be going to hotels more. So there's an increase in alternative in the mix. But hotels will also be growing along with that.

BRIAN SOZZI: Kevin, what's the setup on Airbnb into earnings here? How much do you expect the company to show in terms of bookings growth? And do you think they'll beat?

KEVIN KOPELMAN: Yeah, look, so the company's been putting up strong numbers since they've been public. They've been beating by about the gross bookings side by about 20%. Their category is stronger seasonally earlier in the year. That being said, we know that in September, after the current COVID-19 wave started to subside, that travel bookings have been picking up. So they've said that to expect gross booking value would be down a little bit Q over Q. So we'll see. We have it just down just a hair Q over Q.

Looking longer term, what we published today with our five-year projections, we have Airbnb gross bookings growing 2 and 1/2 times-- over 2 and 1/2 times between this year and five years from now, up to $126 billion. And perhaps even more importantly, we have their EBITDA growing about five times from $1 and 1/2 billion or so this year to $8 billion in 2026. So we think those numbers, over the next couple of years, are going to be pretty shocking. And we're significantly above street consensus at the moment.

JULIE HYMAN: And Kevin, when we think about competition for Airbnb, I mean, I was trying to think off the top of my head. You have Vrbo. You have some of the big hotel companies that have been getting into this space a little bit. You have something like a Sonder, which is sort of a hotel, Airbnb hybrid. In your view, does anyone really stand a chance of chipping away at Airbnb's-- what seems to be a pretty commanding market lead?

KEVIN KOPELMAN: Look, there are three key competitors to think about. First, the direct competitors are Booking Holdings and Expedia, which owns Vrbo in the United States. And what we found is we call those kind of the big three global online travel agents. Among that group, within this alternative category, Airbnb has over 50% share. So we expect all three companies to be successful. But Airbnb's share has actually been ticking up over time. And we don't see any signs of that changing. Airbnb is synonymous with the category.

And then, of course, the other big player that you have to mention is Google. Google is really important to people doing research for their travel stays. They haven't had as much share in the alternative accommodations, vacation rental space, as they have had in hotel. But they're certainly increasing their feature set. So that's something to watch out for. The more success Google has, the more companies like Airbnb and Booking Holdings have to spend on advertising.

When it comes to the hotel companies, we really expect them to stay in their wheelhouse, which is hotels. And they've-- you've seen things-- you've seen Marriott, for example, launch a program, a partnership that allows their customers to book some homes on the site, but nothing that would even remotely threaten Airbnb. And then when you look at other companies that you mentioned like Sonder, most of those companies are actually-- they're actually getting some of their traffic from the Airbnbs and Vrbos. So we don't see them as direct competitors either.

BRIAN SOZZI: Good research here. Cowen analyst Kevin Kopelman joining us for our call of the day. have a good trading session.