Barely a day goes by without a tech company announcing job cuts. Though unpleasant for workers, tech managers looking for evidence their companies could run better with fewer staff needn’t take Twitter slash and burner Elon Musk’s word for it. They might look instead to holiday property rental company Airbnb’s transformation since 2020, when it was forced to lay off 25% of its staff as the pandemic shut down travel.
On Tuesday, Airbnb reported its first full year of profitability and US$8.4-billion of annual revenue — 75% more than it achieved in the year immediately preceding the pandemic.
It helps, of course, that average per night pricing has increased a whopping 36% since 2019, which triggered customer anger about opaque pricing and exorbitant cleaning fees and led to improvements to the company’s platform to ensure Airbnb remains an affordable alternative to hotels. Nevertheless, annual nights and experiences booked have increased by a fifth since 2019, while headcount is 5% lower. The company’s 23% full-year net operating profit margin suggests it’s getting the balance right.
CEO Brian Chesky compares Airbnb’s slimmed-down ranks to military special forces (as opposed to an entire navy) and says this has had benefits beyond Airbnb’s bottom line. “What ended up happening is we had fewer people in meetings, and people can move a lot faster,” he told analysts on Tuesday. “I think it’s made us a much more attractive place to work because it’s much easier to get work done.” If you’ve read accounts of what it’s like to get even minor product changes approved at behemoths like Google, his optimism won’t sound surprising.
And no, Airbnb employees aren’t all wearing hair shirts and coming to the office five days a week. The company has adopted a “live-and-work-anywhere approach”, which you’d expect from a business that has benefitted massively from people having more flexibility to travel and reserving longer stays.
Difficult to replicate
Rather than have staff turn up to the office on random days hoping they’ll serendipitously generate ideas at the water cooler, Airbnb prefers that everyone meet up more occasionally for a specific purpose, which sounds sensible. Employees can move anywhere in the US, and their pay isn’t docked if they pick somewhere cheaper to live than San Francisco or New York. Hence, Airbnb now requires just half the office space it needed pre-pandemic, which has provided a further boost to profitability.
Of course, Airbnb has some unique advantages that make its approach difficult to replicate. When your company name has become a verb, you don’t have to pay search engines as much to promote your product. Some 90% of its site traffic is direct or unpaid.
It helps, too, that Airbnb has amassed a more than $14-billion cash pile, which includes almost $5-billion of customer funds paid in advance of their trips. Thanks to rising interest rates, that cash earned a whopping $103-million of interest in the fourth quarter, or 30% of pretax profit.
Airbnb has also benefited massively from hosts hiking prices — it collects a percentage of the total value of each booking. It says recent efforts to highlight more affordable options during the booking process will contribute to a modest decline in average daily pricing this year. However, the company plans to offset this headwind via further cost savings and thereby maintain its current high profit margins.
Airbnb must work harder to convince customers it still provides good value, but it seems to be keeping employees and investors happy — the shares rose almost 10% in pre-market trading on Wednesday. That’s no mean feat in the current tech environment. Others could learn from it. — (c) 2023 Bloomberg LP
