The Van Trump Report

How We Are Playing the Two Tech Unicorns… and Why We are Buying Airbnb

I asked the kids if our family investment fund had any interest in buying either DoorDash or Airbnb stock on the IPO. DoorDash will be going public tomorrow, December 9th. Airbnb is scheduled to go public the following day, Thursday, December 10th. To make a long story short we collectively decided to pass on DoorDash and place our bets on Airbnb. 

Once the kids went off to college and started traveling the world, I constantly polled them for new perspectives and insights. I taught them how to trade and invest early in life so we constantly talk about new ideas and strategies. I’ve told them many times If they could pick one or two badass stocks early in life and understand how the game is played, they might just change their trajector. For example… $10,000 invested in Amazon when it first started trading on the exchange would be worth +$12 million today. Not bad for a 20-year investment!  

I should note, it was really a lot of the kids input and perspective that prompted me to purchase Facebook on the IPO, Paypal, Snap, Spotify, Adobe, and even Tesla fairly early. Yes, the stock market has gone straight up the past 10-years so it was tough to be too wrong, but I do like hearing their much younger thoughts and have found the insight to be very valuable. I hate to say this, but as we have gotten much older I can very quickly tell which of my friends talk a great deal with the younger generation and values their perspective and which ones do not. I can also see it almost immediately in their investments. In any regard, I am a huge fan and proponent of older people spending more time trying to learn and understand from younger people. Below are some of the e-mail conversations between the kids and I the past couple of weeks regarding Airbnb. I thought it would just be easier to pass along and share. Remember, I could care less if you purchase or don’t purchase Airbnb stock. I just wanted to share our research and the process we use as a family to debate and decide on investments. It truly is a team effort! Keep in mind, I replied to both kids with my comments in “RED”   
Why Not DoorDash? We talked extensively and in its simplest explanation, we decided even though DoorrDash is a great business we didn’t want to compete with our investment in Uber. We are hoping to see Uber make a larger footprint in the food delivery space which would cause some headwinds and hurdles for DoorDash. 

Why Airbnb? On the flip side, we now own several buildings and properties that generate revenue via Airbnb. I don’t want to say we are experts but we do know the space fairly well. Once we decided we had some interest in Airbnb, I told the kids to do their homework, provide some pro’s and con’s, and think about how big of a bite we might want to take.

From Jordan: Dad, read your e-mail last night and circled back around to it this morning. Came up with a few unique ideas and observations that I wanted to share to start the conversation. These are just some quick thoughts and a place to start. I’m wanting to be a buyer of the stock so I have a fairly biased perspective. Perhaps you, Mom, or Kenny can add a different view.
Reasons I like the platform:

  1. They are in the media constantly: Look at all the shows and programs now surrounded by Airbnb now and how many people talk about Airbnb in the media. Between CashPad on CNBC and all these house flipping shows, they seem to always be in front of viewers. Also, look at the social media presence it has with everyone pushing their properties. We are personally doing it with our own Wonka World Properties. Look at hotels… I don’t think they are getting any of this action. At least I don’t see it. Overall, Airbnb is receiving a crazy amount of “free advertising” as the first mover or branding of its platform compared to its competition. Yes, I like the fact their founders and top executives were “designers” and creative people NOT the typical business grad. Remember, creativity usually always wins BIG!
  2. Real Estate is Huge Right Now: As I’ve told you, it seems like everyone I talk to these days wants to be in real estate right in some capacity. What they all say… “Once I start getting into real estate, things are going to change for me and I’m really going to start making money.” It also seems to be attracting more of the “get rich quick” crowd. The number of things I see showing a return on real estate compared to other investments is unreal. I also see more and more classes popping up about real estate investments and how to capitalize. I know plenty of my friends have signed up for many of these deals. As you’ve told us many times, the only people getting rich in that game are the people selling the courses. But I find it interesting that so many are going down that path. I suspect it’s the attraction of ultra-low interest rates and escalating prices. Another interesting thought is that most all of them are buying the property and needing to immediately rent it out for cash-flow reasons. The kicker is most don’t realize how much real work that is so their immediate go to, and I mean their immediate is, “I’ll just Airbnb the property.” I think it’s because the “platform” is so easy to use and owns the space. Like everything else in the tech space the past several years, once people get hooked on the platform they become very sticky clients. Yes, I agree with you entirely. I also see what you are saying about the younger kids jumping into real estate and supplying the platform with a ton of inventory.
  3. Putting Money in Other’s Pocket: At first, Airbnb seemed to gain market share as a cheaper alternative to travel. I think the past few years we have seen it evolve into an alternative revenue stream for many people rather than just a place to vacation or find cheap shelter, which I find interesting. Obviously, it’s a platform to find short-term, vacation, and travel rentals, but the number of people talking about it as an alternative revenue stream really interests me. Look at you and Mom. You guys never stay in an Airbnb but are a part of their market share and a huge fan of their business model since it drives a sizeable share of revenue each month our direction. I think there could be a lot of additional success in their future once they figure out how to create revenue-generating tools that appeal to you and mom and that investor sector of their database. Similar to what we are doing with Holganix dealers or some of the other ag retailers, you are helping them make money and build their business and it’s a win-win for everyone involved. I think putting those extra dollars in people’s pockets and having the actual “platform” for making that happen is going to be HUGE as we move into the future. Might be the most overlooked thing that takes Airbnb to the next level? Couldn’t agree more. I never looked at their database and network from that perspective, but I see what you are saying. There are probably thousands and thousands of affluent real estate owners who don’t necessarily stay in Airbnb’s but are owners of the properties and connected directly to the company. That data and network could be huge. 
  4. The “Community”: I also really like the “platforms” that create a marketplace where both parties are rated. This tends to create a type of Xenia where guest becoming host, host becoming guest, and people try to treat others like they would like to be treated focusing on good hospitality and kindness. I think people want to be apart of something moving forward that offers this “sharing” and the Airbnb platform owns this “community” space when it comes to travel. Dad, think about the Gen Z conversation we had the other day. This is something no one in the travel space is doing. I see it myself with our Airbnb’s. Guests wanting to talk to us, learn more about our family, and hosts staying with other hosts. These people love hearing our story and learning more. They love us sharing all of the cool things you and mom have collected through the years. Again, I couldn’t agree more, people want to be part of something! I also wildly agree with your thoughts on a “platform” that allows everyone to rate everyone, i.e. Uber, eBay, etc…
  5. Targeting the “Experience”?: Millenials and Z’s are obviously going to be a huge chunk of the market share that drives this platform. Let’s put it this way, it’s a big portion of our bet on this stock. What do Millenials want? They want “experiences” and we all know this! Tell me this… is it going to be cooler to stay in the Marriot or in George Brett’s house? Even though the price might be higher, the experience is off the charts. I’ve also seen Airbnb getting much deeper into the “experience” space and I think this is huge!!! Everything from guided walking tours to sitting alongside psychic readings, glamorous photoshoots, and pasta-making classes. I believe they are targeting this space and continue to produce more and more unique experiences. I am very interested in learning and brainstorming more about the “experience” space. Like you and I think it is going to be huge! I still like the thought of turning the main floor of 1020 into an open kitchen concept where local chefs can use the space to host cooking classes and small high-end group dinners at night.   
  6. Where is the Hotel Space Going?: We are seeing it first hand right in front of our face at the new Crossroads Hotel and No Vacancy!!! I believe the hotels that are going to see the best margins moving forward are going to be the unique smaller boutique-style hotels with a story to tell. Look where they are all starting to advertise now and getting their bookings… Airbnb!!! Agreed, I didn’t even think about that revenue stream for Airbnb. 
  7. The Overhead: One thing to love about Airbnb and we’ve seen this business model work many times is the shift in overhead. By owning the “platform” and focusing on it, they are able to reduce their hard-costs and traditional overhead expenses. Unlike our construction business or farming, they are able to expand and contract or ebb and flow with whatever the economy and market dictate. They aren’t sitting with two dozen backhoes on the sideline and paying their heavy equipment operators even though they don’t have any work, but they can’t afford to lose their operators if the economy fires back up. Like you’ve always said, the ability to freely expand and contract without sustaining much damage is the key to long term success. Think about it, how many properties are they actually managing? How many buildings do they actually own? The people managing all the properties are individual owners who have their own real chips on the line. Hotels don’t stand a chance in this business, in my opinion. Just like Uber, tough for the Taxi companies to compete against people who own their own vehicles and are using them to supplement. They invest all their money in the platform, the creative, and marketing! Agreed. The pandemic hit and they simply chopped 25% to 30% of the Airbnb staff and yet the company kept on trucking. Didn’t really have a shit load in hard assets like buildings and machinery to worry about. All they really have is people servicing their virtual platform like Snap, Facebook, Instagram, etc…  tough to beat those people once they get established. 

From Kennedy: Dad, here are some of my early thoughts and expanding a bit on Jordan’s earlier comments.  

Pros:

  1. Payment: Using On-Site Platform for Payment. The ability to use their own platform for payment and not take guests to another company I think is a huge deal in convenience and cost. Agreed. Like Uber. Others, unfortunately, didn’t make that play and I suspect gave up a ton of margin.
  2. Easy and Simple: It seems as if they set up the app to where someone 18 to 80 can navigate themselves throughout it easily. This is a huge deal. Inclusivity is major and creating accessibility for all ages is key to a successful and viral business (like Facebook) Agreed. I think they have clearly established themselves as the leader in the space and it would take a serious problem to prompt a huge number of people to learn something different or new. 
  3. More inclusivity: Not only in the US, but many other countries have access to Airbnb as well. Creating a multi-language-based platform is bound to go viral because of inclusivity. ( Like seen in Tik Tok – creators with dancing videos and no words are more likely to become viral because of inclusivity of all languages.) Agreed.
  4. Determination: The owners of the company seemed as if they stop at nothing to become successful. Designing cereal boxes in order to create $30K funding startup money as an example. We will see them fighting for their company’s success at all costs in the present and future. This is a BIG one for me! As I said, “creativity” generally always wins out in the end. 
  5. Numbers: It’s no lie that the company has been growing like crazy. Just from 2011 to 2012 they went from 1 million nights booked to 10 million nights booked. They made $5.3 billion in 2019 just on service fees. Also, a jump of $11 billion in GBV from 2018 to 2019.. Just 1 year! From my perspective, has massive potential to keep growing. 
  6. Competition: Airbnb is the best at what they do and has little competition. You could classify hotels as direct competition, but I do not. There is really nothing on the market similar to Airbnb except maybe VRBO and HomeAway. I think Airbnb still takes the cake when thinking of home rentals. After all, Airbnb created a new category in short-term stays, they changed the game. I agree with Jordan that the hotel business is not something to invest in. A lot of projects in school are “boutique hotels” and how they are growing in many major cities because of the unique feel they have. When staying places in college me and my friends have stayed in a generic hotel maybe once or twice… we always look for the coolest places! Human scale is really important in today’s society. People do not want bland, mass-produced anymore they want human interaction! Agreed. 
  7. Unique: There are constantly new hosts and guests coming into the world of Airbnb which creates new opportunities and changing scenery. Similar to Facebook and Instagram there are always new opportunities to be made and new places to be seen. Guests and Hosts will not get bored easily and are more likely to use multiple times. Good point and Jordan seems to think something very similar.

Cons:

  1. Guest Complaints: If you flip through their Instagram there are many, many complaints in the comments on their posts – especially during covid. Many guests are putting complaints in the comments because they cannot get replies to direct emails or direct messages, so they end up asking questions in the comments or just straight up complain about how they have not gotten a response in weeks. Some simply write “your customer service is awful”. Customer service problems are NOT good. We need to keep an eye on this!
  2. Discrimination:  A huge topic and issue in today’s society. How can we eliminate discrimination in Airbnb daily? Airbnb came out with an article in June explaining their take on discrimination within their business. “Since 2016, we’ve removed 1.3 million people from Airbnb for declining to treat others without judgment or bias- but there’s still a lot more work to be done.” Through more research, Airbnb had a bit of a problem with discrimination in 2015/2016 and got many complaints as a “white company”. I know Dad and Jordan will say “it’s my house I can have perceptions about people whenever I want.” That is your opinion, but I think this is a huge concern and maybe even detrimental to a large company in 2020. Also another good point. If they fall under “socially incorrect” fire from the public or media the stock could take a massive hit. The biggest hedge fund managers I know say being environmentally and socially correct is almost more important than earnings and revenue these days.   
  3. Costs: Airbnb covers hosts up to $1 million in damages during a night stay. How often are they reimbursing guests? Is this taking a big chunk out of profits? But like Jordan said, this is really their only overhead except for paying their own employees. Hosts and Guests do all the work. Like you mentioned in Customer Service. If they are losing more clients and revenue out the back door and can’t stop the bleeding in a quick and cheap manner it could be a problem longer-term. We have to watch retention numbers closely!
  4. Covid 19: Airbnb laid off 1.8K employees in May of 2020 due to Covid which is about 25% of their company. I know everyone has taken a hit this year but that seems concerning to lay off that many people. Could be why customer service is getting negative feedback this year. They also received a lot of scrutiny for it from their employees that stayed. They cut $800 million from the marketing budget, canceled almost all freelancer contracts, and cut a number of teams including the safety team which handles violent situations at Airbnbs. This brought light to a number of safety cases that needed responses and even a shooting at an Airbnb in October of 2020. Current employees said the company culture has taken a huge hit after the layoffs and the dynamic in the office is not the same. Like the best CEO’s always say, “get the culture right and the rest will follow”. If they get an internal culture problem we have to move to the sideline with our investment. 

Questions…

  1. When a company goes from private to public – in history does the company usually do better or worse? It all depends. Some are saying Airbnb is coming to the public market a bit earlier than they anticipated because this gives them the ability to raise a bunch more money and they are going to need it. Some companies have gone public and failed miserably. Public is much different than private. As a public company, you have to continually show “front-line” growth or your shareholders want out. In other words, you have to constantly be showing new stores opening, new market share being gained, new revenue channels, and that you are gaining more traction. If Airbnb can’t keep that growth trajectory shareholders could start to question future growth and the stock’s valuation will fall into question and pressure price. On the flip side, a private company doesn’t necessarily have to answer to public shareholders and can scale back at times and mainly focus attention on just profit and loss not “front-line” growth. Two very different animals and worthy of more discussion and debate. 
  2. I do not know much about the Experiences portion of Airbnb, would be a good thing to investigate because it seems as if they are making a big portion of their income off charging hosts a 20% fee who offer an experience to guests. 20% is a great margin for Airbnb especially if they can get traction like Jordan thinks is possible. 
  3. Do we see the company taking off again once stay at home orders are released? We have been pretty booked, but I bet Airbnb has taken a huge hit in terms on International traveling. When will we see their profits from international travels rise again? I think it explodes once concerts and conventions get going again. Maybe I’m way off, again, worth a deeper dinner conversation amongst us. 
  4. How will their stock shares work? I learned that 3 owners have 43.8%, Sequoia has another 16.5% and Founders Fund has 5.4%. Will it be a tight float? Something we need to learn more about and get more specific data. Goldman is the lead underwriter, I will call and get back. 

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