Airbnb and DoorDash boosted marketing in Q2 for recruiting

A bicycle courier carries a DoorDash bag during a delivery in New York, Wednesday, December 9, 2020.

Michael Nagel | Bloomberg | Getty Images

Airbnb CEO Brian Chesky told CNBC’s Mad Money in April that the home sharing site “can cut marketing to zero and still have 95% of the same traffic as last year,” suggesting that there would be no return to pre-covid spending.

Far from bringing the number to zero, Airbnb said in its earnings report for the second quarter on Thursday that sales and marketing expenses were up 175% year over year to $ 315.3 million. The cost isn’t quite at pre-pandemic levels, but it’s not too far off from its high of $ 437 million in the fourth quarter of 2019.

The difference now is that Airbnb spends money to attract hosts, not travelers. It is becoming a common topic in the gig economy. The grocery delivery company DoorDash also said in its earnings announcement on Thursday that it had increased sales and marketing costs by over 150% year-on-year to attract Dashers, or what the company calls its drivers.

The combination of a massive post-pandemic labor shortage in the US and an increasingly crowded market of app-based share-everything companies is causing the prices of freelance and contract work to rise. Businesses need to find new ways to bolster the supply side of their platforms to meet consumer demand and continue to grow rapidly.

“We actually bought more Dasher this quarter than in DoorDash history,” CFO Prabir Adarkar said on Thursday’s conference call when an analyst asked about the spending increase. “And we’ve probably seen higher ad rates because the ridesharing and others are competing for dasher in our pool. So these two things led to higher Dashers costs this quarter than we had planned. “

DoorDash posted a 30 cents per share loss for the quarter, more than analysts expected 6 cents, even though revenue surpassed estimates of $ 1.24 billion, according to FactSet. The stock lost more than 4% before markets opened on Friday. They turned slightly positive in morning trading.

In the grocery delivery market, DoorDash has to fight back against Uber Eats and GrubHub. In general, there is competition from Instacart, which requires drivers for grocery delivery, Uber and Lyft for ridesharing, and Amazon’s Flex service for package delivery and grocery delivery.

Uber and Lyft are grappling with long waiting times and consumer complaints about higher prices. Uber CEO Dara Khosrowshahi said on his company’s conference call last week that Uber had spent more getting drivers on the road.

“The highest spending on driver acquisition and incentive spending that we believe we’ll see was in the second quarter,” said Khosrowshahi. “We had to act really fast because the market wasn’t in what we thought was healthy and we wanted to lean forward to cut the waiting times and lower the surge levels.”

At Airbnb, the story is a little different.

During the pandemic, when travel stalled and revenues plummeted, the company cut its marketing costs by about 75% between Q3 2019 and the same period in 2020.

Airbnb’s business rebounded with the launch of vaccines that year and the reopening of the economy. Instead of spending a lot of money on digital and TV marketing to find consumers, the company looked to the other side of its market.

Airbnb CEO Brian Chesky attends the Cannes Lions on June 20, 2016 in Cannes, France.

Richard Bord | Getty Images

Chesky, who co-founded Airbnb in 2008, said in April the platform would need to add millions of new hosts if travel picks up. Airbnb launched an advertising campaign entitled “Host Enabled” with photos of guests who lived in homes around the world.

Airbnb announced in its earnings statement that it had expanded the campaign to Italy and Spain in the second quarter. Excluding stock-based compensation, the company recorded sales and marketing expenses of $ 292 million for the quarter, the highest since the first quarter of 2020 when it spent approximately $ 311 million.

“We remain very encouraged by the results of this campaign in terms of traffic, first-time bookers, interest in hosting and brand preference,” said Chesky on the call with analysts.

The big risk is that Airbnb’s spend on host recruiting could backfire if recent pandemic trends continue.

Airbnb, in its letter to shareholders, warned that the Delta variant, a highly contagious strain of Covid-19 that is causing a surge in hospital admissions in Florida, Texas and elsewhere, is likely to affect travel behavior, “including frequency and time , in which guests book and cancel “. . “

The core businesses of Uber and Lyft face similar risks. DoorDash, on the other hand, was among the biggest beneficiaries of the pandemic last year as restaurants closed and consumers turned to delivery.

The big investor question for DoorDash was: What happens when restaurants reopen? Between mid-February and mid-May, the share lost half of its value. However, it has made up more than half of its losses as the news about the Delta variant has deteriorated.

Analysts pay close attention to fluctuations in the economy. Alexander Potter of Piper Sandler said in a note following the earnings report that there was still uncertainty about future demand for DoorDash.

“We still believe there is a risk of normalization in the coming quarters,” wrote Potter, who has the equivalent of a hold rating on the stock. “But a Covid resurgence could delay this problem.”

– CNBC’s Salvador Rodriguez contributed to this report

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