Gig Economy Companies Costs Rise Amid Labor Shortages

Airbnb, DoorDash, and Uber See Costs Rise

From Airbnb (ABNB) to DoorDash (DASH), some of the nation’s largest gig-economy companies are seeing costs rise. But it is not from spending to lure new customers. They are pouring money into recruiting efforts to hire more drivers and find hosts.

Gig-economy companies are figuring out ways to enhance the supply side of their operations to meet pent-demand, which has not been slowing down. As a result, costs are rising at Airbnb, DoorDash, and Uber, among others.

Airbnb Needs More Hosts

Airbnb was hit hard during the pandemic with travel coming to a halt. But as vaccinations rolled out and shutdown restrictions eased, business has recovered. While Airbnb did not have to spend a lot of money to find new customers, it has spent to expand the number of hosts on its platform. For its second quarter Airbnb had sales and marketing costs of $292 million, which is the highest it’s been since the first quarter of 2020.

Travel could slow down again if the Dela variant continues to spread, presenting a risk to the spending strategy at Airbnb. It is something Airbnb warned in its annual letter to shareholders. It said spikes in hospitalization in Florida, Texas, and other parts of the country could lead to lower bookings and cancellations.

Drivers in Demand

DoorDash is also seeing costs rise as it competes with Uber (UBER), Lyft (LYFT), and Instacart for drivers. Sales and marketing costs in the second quarter increased 150% year-over-year with much of the money being spent to recruit drivers. DoorDash also experienced higher advertising costs during the quarter as other gig-economy companies also ran recruitment ads.

Meanwhile, Uber said it has been spending more to recruit drivers. The company does expect the heavy spending in the second quarter to recede a bit as it was aggressive with hiring during the quarter.

Demand for gig-economy services is skyrocketing at the same time companies are struggling to meet demand. It will be interesting to see how long this supply/demand imbalance lasts and how the gig-economy companies respond.

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