Airbnb Embraces the Enemy
Airbnb Inc. is largely known for cheap accommodations and the occasional awkwardness that comes with staying in someone else’s home. Now the company wants to broaden its appeal by incorporating what has long been seen as the enemy: hotels.
Brian Chesky, Airbnb’s co-founder and chief executive officer, has announced a new hotel-like tier of service on its platform that the company is calling Airbnb Plus. It is designed to make his service more mainstream. The efforts include highlighting hotels on the website, a loyalty program, and the ability to match guests with accommodations that fit their budgets and tastes.
Although Airbnb has let hotels and bed-and-breakfasts quietly list on its website for years, Chesky will give the clearest indication that hotels are an essential piece of his strategy to create a full-service travel company. The move is intended to attract business from online travel agencies Expedia Inc. and Booking Holdings Inc., formerly known as Priceline Group. Because Airbnb is charging much lower commission fees, it could be very effective. “At a high level this is a negative for Booking and Expedia,” said Kevin Kopelman, an analyst at Cowen & Co.
Since debuting in 2008, Airbnb has raised about $3.1 billion in funding, and recently it has been under some pressure to go public. Investors have valued the business at $31 billion, the second-biggest U.S. venture-backed technology startup without a stock listing. (Only Uber Technologies Inc. is more valuable.) But Airbnb is profitable before certain expenses, and Chesky is in no hurry to hold an initial public offering. Chesky has said there is more he would like to accomplish before then and that Airbnb would not go public this year.
Airbnb has a long and combative relationship with what it describes as “the hotel cartel.” On the site, hotel inventory used to be indistinguishable from home-rental listings. Yet, hotel listings on the service have increased six-fold over the past year, according to the company. The service currently has 204,000 rooms from hotels and bed-and-breakfast places for rent.
The economics are especially attractive to hotels. While Airbnb charges as much as a 15% commission to guests, hotels and other hosts pay 3 to 5 percent for each booking. That is considerably less than the average 17% fee Expedia and Booking Holdings take from hotels, according to Cowen, the research firm.
Soon, Airbnb will let people search for hotel listings in a new category called Boutique. Do not expect to find a Motel 6 on there. A document Airbnb created for hotel owners reads, “Larger corporate hotel chains are not the right fit for Airbnb.” The company said it will vet listings and has partnered with SiteMinder, which provides booking software to about 28,000 hotel brands around the world. In marketing materials distributed in advance of the announcement, the word “hotel” was never used.
Citations
- https://bloom.bg/2sPkOlq – Bloomberg
- http://bit.ly/2F0eYTi – TheVerge.com
Walmart Looks to Home Furnishings to boost its E-commerce Strategy
Walmart is launching a new online home shopping experience in the coming weeks that will let shoppers discover items based on their style. The move is the first glimpse of the company’s broader campaign to redesign its site with a focus on fashion and home furnishings. The overhauled website will be launched later this year and will mirror how people shop for different items. While some purchases like groceries are transactional, others like fashion and home furnishings require more discoveries by customers. Later this spring, Walmart is rolling out its new Lord & Taylor dedicated page as part of its partnership with the department store chain’s parent company Hudson’s Bay.
Walmart’s home shopping site will include curated collections and nine shop-by-style options including modern, traditional, and bohemian. It will offer design tips that will help shoppers pull items together. “With this launch, we’re making it faster, easier and more inspiring for customers to discover the best of our assortment no matter their personal style,” said Anthony Soohoo, Senior Vice President and General Manager of Home Furnishings for Walmart’s e-commerce division.
The move comes as Walmart, with its eye on Amazon.com, has been working to ramp up its e-commerce business, which still accounts for less than 4% of its total sales. It has overhauled its shipping strategy and expanded the number of items online to 75 million. In home furnishings, it doubled the number of products online from a year ago and introduced a new Scandinavian collection of furniture for children.
But Walmart faces stiff competition in the home arena not only from Amazon but home shopping sites like Wayfair. Amazon has been growing its home offerings. It sells its own exclusive brands of furniture, sheets, and other home goods. It signed a deal with Ethan Allen last year to sell its sofas, lamps and rugs, and Amazon shoppers can ask Ethan Allen experts for design advice. Boston-based Wayfair is the largest online-only furniture retailer and has a seemingly infinite range of products, but it is facing more pressure from Amazon as it expands deeper into the home arena.
Target has also been stepping up its offerings in home furnishings, both online and in the store. Two years ago, it started offering vignettes in the home area of its physical stores to inspire shoppers to buy. Walmart will focus heavily on competing on price, with low-cost products, like sofas that start at $159, twin mattresses starting at $59, and rugs starting at $17. That means it will also be challenging other furniture retailers that promote affordability, like IKEA and Wayfair, for instance.
The new site will go live on Walmart.com across web and mobile as a slow rollout over the next few weeks, under the Home category. It will also offer a preview of Walmart’s larger e-commerce site design, scheduled for later this year.
Walmart’s latest online strategy comes as it hit a snag in its e-commerce business for the critical fiscal fourth quarter, after enjoying a surging e-commerce business over the past few quarters that helped lift its stock. Its U.S. e-commerce business rose 23% for the fiscal fourth quarter, a dramatic slowdown from the 50% growth in the previous quarter. Shares fell 10.2% on the news to post their biggest single-day percentage drop in 30 years. Walmart says it expects its e-commerce business to ramp up this year and sees e-commerce rising 40% this year, the same pace as last year.
Citations
- http://cnb.cx/2EMrDG3 – CNBC
- http://tcrn.ch/2GCgrMM – Tech Crunch
The Good News Is . . .
- Initial jobless claims continued to post very favorable readings that remain near historical lows, at 222,000 in the February 17 week down 7,000 from the previous week’s downward revised level, taking the 4-week average to 226,000, just shy of the 45-year low seen recently. The average is down about 13,500 from this time last month. Further pointing to strength in the February employment report, continuing claims, in lagging data for the February 10 week, fell by 73,000 from the previous week to 1.875 million. The 4-week average is down 16,250 to 1.927 million, with the unemployment rate for insured workers falling 0.1% to just 1.3%.
- Cracker Barrel Old Country Store, Inc., a retail chain of high quality, home style restaurants in the U.S., reported earnings of $3.79 per share, an increase of 73.1% over year-earlier earnings of $2.19 per share. The firm’s earnings topped the consensus estimate of analysts by $0.42. The company reported revenues of $787.7 million, an increase of 2.0%. Management attributed the results to improved same store sales and increased average check size, as well as a lower overall tax rate.
- The supermarket operator Albertsons announced that it would buy the remnants of the Rite Aid drugstore chain. An old-line grocer, Albertsons is striving for reinvigoration in a retail landscape being upended by e-commerce competitors and discount food stores. Amazon wants to dominate the grocery store business, while also eyeing the health care industry and the deal for Rite Aid puts Albertsons directly in the middle of both of these major pushes by the e-commerce giant. Albertsons plans to rebrand its in-house pharmacies under the Rite Aid name, and to continue operating some stand-alone Rite Aid stores. The strategic bet is that the increased foot traffic to the in-house pharmacies will bring more customers to Albertsons’ food aisles. Under the terms of the deal, Rite Aid shareholders would get $1.83 in cash and one share of Albertsons stock, or 1.079 shares of Albertsons stock, for every 10 shares of Rite Aid they owned.
Citations
- https://bloom.bg/2eVhfSb – Bloomberg
- http://cnb.cx/2lwnm3s – CNBC
- http://bit.ly/2GDlmNr – Cracker Barrel Old Country Store Inc.
- http://nyti.ms/2EO1iYd – NY Times Dealbook
Planning Tips
Guide to Diversifying Your Fixed Income Portfolio
If you are retired, or are approaching retirement, fixed-income instruments must take a prominent spot in your investment portfolio. At this stage, preservation of capital with a guaranteed income stream becomes the most important goal. Today, however, many investors seek to diversify by getting exposure to different asset classes to keep their portfolio incomes high, reduce risk and yet stay ahead of inflation. Below are some potential investment tools to consider for accomplishing that goal. As all investments entail varying degrees of risk, be sure to consult your financial advisor to determine if these are appropriate to your situation.
High Dividend Equities – Adding some solid, high-dividend paying equities to form a balanced portfolio is becoming a valuable model for late-stage investing, even for folks well into their retirement years. Plenty of large, established companies in the S&P 500 pay yields in excess of current inflation rates, along with the added benefit of allowing an investor to participate in corporate profit growth. Factors to consider include:
• Size – At least $10 billion in market capitalization
• High Dividends – All pay a yield of at least 2.8%
• Low Volatility – All stocks have a beta of less than 1, which means they have traded with less volatility than the overall market.
• Reasonable Valuations – All stocks have a P/E-to-growth ratio, or PEG ratio of 1.75 or less, which means that growth expectations are reasonably priced into the stock. This filter removes companies whose dividends are artificially high due to deteriorating earnings fundamentals.
• Sector Diversification – A basket of stocks from different sectors can minimize certain market risks by investing in all parts of the economy.
To be sure, investing in equities comes with considerable risks compared with fixed income vehicles, but these risks can be mitigated by diversifying within sectors and keeping overall equity exposure below 30 to 40% of the total portfolio value.
Real Estate – Rental property offers the possibility of income to enhance the golden years. However, rather than turn landlord, you may be better off investing in real estate investment trusts (REITs). These high-yielding securities provide liquidity, trade like stocks and have the added benefit of being in a distinct asset class from bonds and equities. REITs are a way to diversify our modern fixed-income portfolio against market risks in stocks and credit risks in bonds.
High-Yield Bonds – High-yield bonds, a.k.a. “junk bonds,” are another potential avenue. True, these debt instruments offering above-market yields are very difficult to invest in individually with confidence, but by choosing a bond fund with consistent operating results, you can devote a small portion of your portfolio to high-yield bond issues as a way to boost fixed-income returns. Many high-yield funds will be closed-end, which means that the price may trade higher than the net asset value (NAV) of the fund. Look to find a fund with little to no premium over the NAV for an extra margin of safety when investing here.
Inflation-Protected Securities – Next, you may want to consider Treasury Inflation-Protected Securities (TIPS). They are a great way to protect against whatever inflation might throw your way in the future. They carry a modest coupon rate (usually between 1% and 2.5%), but the real benefit is that the price will be adjusted systematically to keep pace with inflation. It is important to note that TIPS are best held in tax-advantaged accounts, as the inflation adjustments are made through additions to the principal amount. This means that they could create large capital gains when sold, so keep the TIPS in your IRA, and you will be adding some solid inflation-fighting punch with the security that only U.S. Treasuries can provide.
Emerging Market Debt – Much like with high-yield issues, emerging market bonds are best invested in via a mutual fund or exchange-traded fund (ETF). Individual issues can be illiquid and hard to research effectively. However, yields have historically been higher than advanced-economy debt, providing a nice diversification that helps deter country-specific risks. As with high-yield funds, many emerging market funds are closed-end, so look for ones that are reasonably priced compared to their net asset value.
Citations
- http://bit.ly/2CD3FLH – Schwab.com
- http://cnb.cx/2EWG9OH – CNBC
- http://bit.ly/2BLqShZ – Investopedia
- http://bit.ly/2nchMCC – US News & World Report
- http://bit.ly/2HG2lve – JPMorgan.com
