High average daily rates helped spike Airbnb profits during the third quarter. But the company is preparing to roll out changes to make its prices clear, add competition among hosts.
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High average daily rates helped Airbnb continue its rapid growth this year, but the short-term rental leader said this week it would look into ways to increase competition among hosts that some believe could drive prices down.
Listings on Airbnb will soon show an “all-in price” for a booking, including the price of the home with any associated fees, CEO Brian Chesky said during an earnings call on Tuesday.
The changes would come as part of what Chesky said was an attempt to display the true costs of renting an Airbnb, which could make it more likely for people to finish a booking. The company has faced public criticism over fees that drive up the price of a booking on the platform.
“When you see pricing, instead of seeing more of a nightly rate, you’re going to see a little more of a fully loaded rate,” Chesky said.
Chesky shared the updates on the same call that he unveiled yet another strong year for the platform he helped start in 2008.
Bookings of nights and experience on Airbnb grew by 25 percent in the third quarter compared to a year before. Revenue was up 29 percent during those three months, at $2.9 billion, and net revenue was up 46 percent, at $1.2 billion. The company has $9.6 billion in cash, cash equivalents, marketable securities and restricted cash.
Some of that growth came as the average daily rate — or the base price to book an Airbnb listing — rose 5 percent to $156, the company reported.
While the company made headlines in October over a viral post that suggested demand was plummeting in a so-called “Airbnbust,” Airbnb officials reported demand continued to grow despite two straight years of growing interest from travelers.
The company appears to be focusing on one of the biggest pain points of late: travelers complaining about the fees that are tacked onto nights booked.
Airbnb will update its search ranking algorithm that determines where listings appear on the site, Chesky said. The algorithm will start to favor listings that guests have said in reviews provide good value for the price, including fees.
“This will really help hosts understand what they’re charging, and then we’re going to give them more tools so they can see and understand what their all-in pricing is per guest,” Chesky said. “We’re going to provide more discount tools and other features to allow hosts to remain competitive.”
Some short-term rental investors saw the comments as an attempt to get hosts to compete with each other by lowering their prices.
“Airbnb earnings call is bad news for hosts,” Mark Jenney, a short-term rental investor, wrote on Twitter. “Airbnb wants hosts to have a race to the bottom with pricing. This is good for Airbnb because conversions and bookings will increase.”
Another short-term rental investor wrote on Twitter that the update would be a negative for some hosts.
“As hosts, we are focused on maximizing [revenue per available room],” the investor wrote. “Airbnb is focused on maximizing bookings. As someone with some of the most expensive properties in my market, not thrilled.”
Chesky appeared to confirm that assumption.
“If we do all of this, I do believe the prices will get even more competitive,” he told investors during the earnings call. “As prices get more competitive, conversion rate goes up. If conversion rate goes up, bookings go up.”
In the coming months, the company is going to roll out new ways for hosts to offer discounts, Chesky said. That includes more discount options for peak season stays and long-term stays, he said.
Airbnb continues to see interest from travelers who stay for longer periods of time. A fifth of the company’s nights booked were for longer than a month. Half are for longer than a week.
To address sustained high demand, Chesky said Airbnb would remain focused on guiding travelers toward markets that have a higher number of available homes to rent. It will do this by continuing to lean on the categories search function it unveiled over the summer.
He said the company was also preparing to roll out updates that make it easier for first-time hosts to join the platform. Doing so would help add supply to meet high demand.
Those updates will be announced on Nov. 16, Chesky said.