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Nicholas Kitonyi
Nicholas Kitonyi
Articles (296)  | Author's Website |

Is Airbnb About to Stumble on Its Biggest Test Yet?

Company potentially faces security-related challenges

July 07, 2016 | About:

The vacation homes and accommodation company Airbnb took the market by storm after introducing a unique business structure which threatened the rest of the hotel and hospitality industry. The company acts as a marketplace for homeowners to list their otherwise, unoccupied holiday/vacation homes for rental purposes at competitive rates.

This aspect of the business has seemingly threatened the mainstream hotel and accommodation industry as companies seek to retain their customer bases. However, retention won’t be as easy as it was before, given Airbnb’s disruptive business model that helps individuals turn some of their assets into cash generating businesses.

To top it all, these hosts can actually act as co-occupants given the size of their holiday homes thereby managing to offer accommodation at extremely competitive rates compared to what is being offered by mainstream hospitality companies.

Nonetheless, Airbnb’s new business structure has continued to face scrutiny from various regulatory bodies. For instance, in L.A. it is illegal to rent out residences based on current zoning ordinances. There are also other places in the world with very strict Airbnb rules which squeeze on the company’s addressable market.

Airbnb has been pursuing regulations that will allow individuals to rent their homes, but still, there is a question of how long a homeowner should be allowed to rent a room or home in a calendar year. The proposed rules in L.A. suggest that 90 days is the maximum period. This could eventually be a major obstacle to Airbnb’s business growth because it acts as a limiting factor.

However, there seems to be a new emerging threat to Airbnb’s business according to a recent survey conducted by identity monitoring firm LifeLock (LOCK).

While the survey couldn’t establish a direct link between the rising cases of identity theft and the increase of short-term rentals, 40% of the respondents admitted to snooping during their occupancy. Interestingly, millennials were found to be more snoopy after 57% of them admitted to being guilty.

So, is being snoopy a leeway to identity theft? Probably not in most cases, but based on the definition of identity theft there is a strong case why this could turn out to be a major challenge to Airbnb’s business.

There are varying definitions of identity theft, but they all seem to narrow down to one thing: unauthorized access to private information with the intention of committing a crime.

Therefore, the idea of snooping around while in occupancy of a rented space qualifies as an avenue for identity theft. Of course, not all cases will lead to identity theft, but when it comes to the question of privacy, few would be willing to take the risk.

Meanwhile, Airbnb has taken measures to ensure that any cases of identity theft that are connected to its business are cleared swiftly via AllClear, a company that fixes identify theft issues for victims. Airbnb has committed to pay for the services provided by the firm.

By making this commitment, it shows that the issue of identity theft for Airbnb’s business is a serious case and one that it seeks to ensure doesn’t interfere with its operations.

Airbnb is slowly disrupting the hotel and hospitality industry as it marches on to compete with large hospitality companies like Expedia (NASDAQ:EXPE), Marriott International (NASDAQ:MAR) and Priceline’s (PCLN) Booking.com, among others for clients in the market.

The company’s IPO is expected to be a success when it comes, and Wall Street experts are already floating numbers on how valuable Airbnb could be by the time it goes public. While going public presents Airbnb with more funding sources, this also attracts extra regulation on its business operations, which means more scrutiny.

Therefore, as the company continues to push for global expansion, it will be faced with more obstacles that could bring its operations to a level playing ground with its mainstream counterparts.

Airbnb is now reportedly valued at about $30 billion according to the Wall Street Journal, which is pretty big for a company that is yet to offer its shares to the public via an IPO. The publisher also claims that an IPO could already be off the table following a recent round of private funding.

However, it remains to be seen how long it would be before the company finally decides to list its stock on the market. As a privately held company, Airbnb enjoys some freedom from extreme scrutiny and given the various grey areas surrounding its business structure, it might be a smart thing to remain private for the time being.

In summary, Airbnb is one of the most promising companies in the vacations and accommodations market. It has come up with a very interesting business model that will no doubt face several challenges.

Nonetheless, as it continues to weigh options on going public or remaining private, investors will be watching with a keen eye on how it deals with the challenges it faces.

Disclosure: I have no position in any stock mentioned in this article.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

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