Why Chuck Akre & Akre Capital Management Loves AirBnb

Akre's three-legged tool investment philosophy and how Airbnb meets all three

The three-legged stool is the foundation of Chuck Akre and Akre Capital Management's investment philosophy.

A stool with three legs is sturdy and durable, and these are the types of businesses they want to own.

The three investment legs are:

1. Extraordinary business

2. Talented management

3. Great reinvestment opportunities and history

Chuck no longer runs the firm’s flagship fund, the Akre Focus Fund, or the firm itself. John Neff is now the sole portfolio manager but the three-legged stool is the still the guiding principle.

So how does Airbnb measure up to these three criteria?

Extraordinary Business

Vacation rentals and hotel alternatives aren't new, but Airbnb created a unique platform that connects individual hosts directly with their guests.

Before Airbnb, vacation rental companies managed collections of properties, or individuals listed their vacation homes independently. Finding accommodations in a specific location was time-consuming—you had to locate a rental company or individual owner, discover their listings, contact them about availability, coordinate booking details, and then agree on how to pay them.

Airbnb eliminated these marketplace frictions, making it remarkably easy for anyone to discover and rent unique properties or find affordable alternative lodging.

Airbnb also centralized the payment process, transforming a low-trust scenario of sending money to strangers into a secure, streamlined transaction.

With these barriers removed, Airbnb attracted both more property owners willing to list their spaces and more guests seeking unique or cost-effective accommodations.

Airbnb's relentless focus on design and user experience has distinguished it from traditional vacation rental companies. This focus has even turned the company's name into a verb, like Google.

"We'll Airbnb it."

And it’s why Airbnb has over 7 million listings compared to 2 million for VRBO, its closest competitor.

Talented Management

While Airbnb has only been public since 2020, making it somewhat early to definitively judge Brian Chesky as a talented manager, his track record shows he is on the right track.

He successfully took Airbnb public. Transitioning it from a small startup to a $66 billion company.

Many founders step aside as their companies mature for professional CEOs with extensive public company experience. Chesky has demonstrated the rare ability to excel both as a founding CEO and as the leader of a large public company, successfully navigating each role's different challenges.

Just before Airbnb's planned IPO, COVID-19 hit, devastating travel-related companies. This could have been a fatal blow to Airbnb, but Brian was able to make the tough necessary decisions while recognizing how the travel industry was transforming due to the pandemic.

He had to reduce the company's workforce by 25%, but he ensured this was handled compassionately. Airbnb provided generous severance packages and covered the cost of COBRA for one year so terminated employees would not lose their health care coverage during the pandemic.

He was also able to recognize the shift from short-term stays towards longer-term stays as more people were able to work from anywhere and could combine work and travel.

And to double down on this trend, he established a “live anywhere” policy for Airbnb employees.

More importantly for Akre, Chesky is focused on long-term value creation, prioritizing decisions that not only grow the Airbnb platform but ensure its health rather than focusing on short-term gains.

Great Reinvestment Opportunities and History

Airbnb is a two-sided marketplace like Uber that generates strong network effects.

As hosts list more properties on Airbnb, the platform becomes increasingly valuable to potential guests. Similarly, as more guests use Airbnb, the platform becomes more valuable to hosts. This creates a powerful, self-reinforcing cycle that drives growth.

Since Airbnb operates as a digital platform, it requires minimal capital reinvestment to grow—a fact reflected in its steadily increasing Return on Invested Capital (ROIC) since its IPO.

The company's high Returns on Incremental Invested Capital (ROIIC) also reveal its strong reinvestment opportunities.

2023 returns are skewed by a large $2.8 billion tax benefit that caused NOPAT to spike. However, looking beyond the year-to-year volatility and focusing on Airbnb's 3- and 5-year ROIIC ending in 2024, we see strong reinvestment opportunities for the company.

This makes sense given their continued international platform expansion and addition of services like Experiences to their traditional booking platform—moves that increase gross booking value with minimal incremental costs.

Three Legs and an S-Curve

Airbnb exemplifies Akre Capital Management's three-legged stool investment philosophy by demonstrating extraordinary business qualities, talented management, and compelling reinvestment opportunities.

What makes Airbnb particularly attractive to Akre is the combination of these three elements with its youth. Unlike mature businesses that might struggle to find high-returning reinvestment opportunities, Airbnb can still deploy capital at attractive rates while benefiting from the compounding effects of its network-driven business model. This positions the company perfectly for the kind of long-term, compounding growth that Akre seeks in its investments.