Why Airbnb Will Continue to Slide
It shouldn't come as a surprise that Airbnb is down more than 10 percent today.
Every entrepreneur knows when you lose a whale, you must find a replacement quickly or revenue will fall. In the case with Airbnb, it lost its whale in January when New York City banned short-term rentals, and there is no replacement in sight.
My wife and I own 5 short-term rentals in three different cities - Brooklyn, Newport, RI and upstate New York. By far, Brooklyn was the most profitable and provided consistent income from international families, business travelers and young tourists.
When New York City tried to pass the law, NYC council members (and lifetime politicians with no business experience) tried to portray hosts as criminals. They vilified short term rentals as contributing to the housing crisis, and alleged these rentals were dangerous to stay in.
The hotel industry won the PR and public policy debate. And as the owner of a PR firm and former journalist, I can tell you, Airbnb and VRBO not only lost the PR battle, but they lost the PR war. They were never in the headlines, telling their side of the story on how short-term rentals actually help the community.
I’ll go on a limb now and predict the company will continue to slide for the rest of the year and beyond based on their strategic mistakes.
Financials will Cave with More Short-Term Rental Laws
When New York City passed the short-term rental law, Mayor Adams bragged that 10,000 Airbnb rentals would be removed from the market.?
Of course Airbnb doesn’t reveal its revenue by market size, but if you take a conservative monthly projection of $5000 for a short-term rental, you can see that Airbnb could lose $50,000,000 a month in New York City alone. No wonder the hotel industry was fighting so hard to get rid of short-term rentals. And that’s not a crazy projection.?
Rent statistics show the average Brooklyn apartment rents for $3250, so it’s not a stretch to project the rental market from entire homes in New York City could generate roughly $64,000,000 a month from New York City alone. That's based on a doubling of the rent.
That’s a big whale that isn’t coming back.?
Even worse, this doesn’t account for other popular tourist destinations, like Miami Beach and Napa Valley, that passed short-term rental laws years ago.
Airbnb might say that it’s pivoting back to their original model of renting individual rooms, which are mostly legal under short-term rental laws. But that’s like focusing on the goldfish in the pond. Airbnb's real income comes from hosts who rent out their entire apartments, and revenue from individual rooms will never over-compensate for revenue lost from entire home rentals.
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Airbnb Lost the PR War
I spoke at a NYC Council hearing earlier this year as lawmakers discussed the short term rental law. I explained how tourists brought new revenue to our community. Restaurants, bars and museums in my neighborhood would have fewer customers under this law.?
I also shared why this would hurt tourism since a family of 5 from France or Texas can’t always afford 2 or 3 hotel rooms in Manhattan.
Unfortunately, the voice from one person can’t change policy, and this is where I blame the PR teams for Airbnb and VRBO. They should have been pushing and explaining the narrative of how this new law would hurt families and local businesses. That narrative was never in the news.
The New Customer Base is Drying Up
Getting back to the business strategy, all entrepreneurs know they either keep their best customers or replace the customers they lose. It’s always easier and less costly to keep the current customers.
Unfortunately, that is no longer possible with Airbnb so the company must now pivot to find new customers who want to rent out a room.?
I can tell you from experience, it’s real work to run a short-term rental and after a few months, every host will get tired of it and quit the platform. We heard this last year on an Airbnb earnings call where the company discussed their high churn rate.
Like every business, running a short-term rental requires time and money. It’s not a job for everyone. And now, Airbnb’s CEO Brian Chesky and his PR team must convince new hosts to join their platform? It’s a job that will require great stories, time and resources. More important, it will require patience - and we all know Wall Street doesn't have that character trait.
I still have hope that Airbnb and VRBO will come together and find a way to share positive stories from the community. But based on what I've seen over the last few years, I don't see it happening unless their PR team and lobbyists get together and learn to tell better stories. I'm here if you need help with that.