Join NexChange - the professional
network for the financial services
industry - and receive a free one-
year subscription to Forbes
One of the Biggest Unicorns Could Be in Trouble: Morgan Stanley
As Uber comes under pressure, another major “Unicorn” Airbnb Inc (AKA Airbnb) could also be facing growing pains.
The market has reached peak Airbnb, a Morgan Stanley report asserts. The report downgrading Airbnb Inc while recommending online travel agencies (OTAs) and giving a nod to traditional hotels came as user adoption and growth trends appear to be topping.
Not just Airbnb Inc , but Online Travel Advisors (OTAs) will heavily influence the market, says report
In the wake of a scandal where the online travel advisory service (OTA) TripAdvisor was accused and later apologized for deleting reviews where allegations about rape were made, the underlying business model of the sector is in the spotlight. But allegations of putting the finger on the scale of recommendations aside, it is the online travel advisory firms that are most likely to disrupt the hotel industry, not Airbnb Inc .
Noting that “slowing Airbnb adoption speaks to the OTA’s competitive moat,” it is the power to recommend accommodations that could win the day in the long run. OTAs power to start recommending alternative accommodations to AIR b and b is done from the standpoint of being a one-stop travel planning shop, while Airbnb is a niche product that is showing signs of a momentum top.
“Over the long-term, we see the sites that offer consumers the most selection across hotels and alternative accommodations as likely being the best positioned for repeat traffic and strong brand equity,” the report stated. “Over the long-term, the OTAs are becoming growing threats to Airbnb’s long-term growth opportunity.”
The trends don’t appear to favor the portal that rents out the spare rooms of strangers:
With three years of data points, we are even less concerned that Airbnb is a material competitive threat to the OTAs. First, our survey data show the OTA channel has been relatively more resilient than the hotel channel over the past three years. Second, if hotels continue to lose share to Airbnb, they could become more dependent on OTAs for traffic… which will be positive for OTA take rates and profitability. Third, the major global OTAs have been building out their inventory of “non-hotel” accommodations (bed & breakfasts, chalets, apartments, etc). Fourth, we believe the OTAs’ search marketing expertise and the sheer dollar spent on advertising (~$9bn in direct advertising annually) are barriers for Airbnb to surmount. If anything, the OTAs are becoming a larger threat to Airbnb Inc
But there are other issues throwing sand in the gears of Airbnb’s (private market value) “stock price”.
Airbnb Inc adoption “topping,” says report, likes Online Travel Advisory services
Airbnb Inc adoption, which has been meaningfully slowing of late, is “topping out.” according to Morgan Stanley.
“With Airbnb awareness now at 80%, awareness-driven adoption can only go so far among this demographic in these countries,” while pointing to concerns among what is left in the undecided consumer category.
Not only is the awareness market reaching saturation, but privacy and safety concerns “are material and growing barriers to adoption,” the report said, pointing to increasing concern on these topics among those considering the service.
The number of those concerned about safety and privacy of staying in a private house was up 43% year over year from 2015 to 2016 and is up again in 2017, a trend that for technology-based companies often works in reverse. “Typically consumers become more comfortable with emerging technologies as awareness/testing/adoption grow,” a situation that “doesn’t appear to be happening for Airbnb.”
The recent decline is speaking to “two potential truths,” the report observed: 1) How Airbnb/sharing lodging could be more niche than previously expected, and 2) How the lobbyists/opponents of Airbnb may be gaining traction.
As a result, Morgan Stanley is lowering its Airbnb Inc user forecast by 31% in 2018, 39% in 2019 and 46% in 2020. Even though incremental adoption trends are slowing, Morgan Stanley also notes that ”Airbnb demand continues to cannibalize traditional branded hotel business.” Even if Airbnb Inc starts to become less a threat to traditional hotels, it is the OTAs that are likely to benefit, further reducing the hotels’ profit potential.
There is a case in which Airbnb Inc may emerge as a winner: when they become more like an online travel advisory service:
If Airbnb ever decides to allow hotels to list properties on their site – a likely positive for Airbnb’s user conversion and monetization – it could create a more comprehensive, faster growing, lower cost OTA competitor. Airbnb currently charges properties 3% on transactions…while OTAs charge hotels 12-18%. Even if Airbnb offered the hotels a commission rate that is triple its standard 3% rate, it would be positive for hotels, likely leading to lower average customer acquisition costs… and it would give the hotels more leverage against the OTAs.
However, assuming the bearish case of Morgan is correct, VCs are probably crying as Airbnb Inc, the third largest, valued at $26B or so, faces pain.
This article was originally published in ValueWalk.