I first wrote about Lululemon in a November deep dive, back when it was Aquitaine’s largest position. The stock subsequently rallied ~32%, largely beginning with the resignation of CEO Calvin McDonald—the casualty of an extended stretch of disappointing results and a budding proxy battle with founder Chip Wilson. While the market had found its scapegoat, I wasn’t sure it had the right one. As I wrote in a follow-up:

I stayed long anyway, and the reason was price. Even after the rally, LULU traded at roughly 9× consensus 2027 EBIT—cheap in absolute terms, and cheaper still relative to Nike, which traded closer to 19×. For the prior decade the two had traded at roughly the same forward multiple, despite Lululemon’s substantially higher growth and margins.

Part of that discount is earned. Lululemon’s run spans roughly 30 years; Nike’s has lasted about 30 years longer, and those additional decades of staying power rightly command a premium. What they don’t do is take anything away from Lululemon’s record—one that would not have been possible without a moat of some kind.

Consider the company’s first decade on the public markets. Its revenue growth, impressive as it was, hardly stood out among its North American peers:

Extend the window to 20 years and the picture changes:

Margins are where it truly separates:

Yes, a premium brand should earn higher margins. But it should not earn margins this high, this consistently, without durable differentiation. I covered the sources of that differentiation at length in the deep dive and won’t rehash them here, though for anyone who missed it, the centerpiece is fabric:

My problem with the Nike discount, though, rested less on these historical parallels, striking as they are, than on the multiyear outlook. Before buying LULU I had taken a close look at NKE, then in its own deep drawdown, around 60% below its all-time high, and wasn’t convinced Elliott Hill was the savior the company needed. (Hold that thought.)

Lululemon, meanwhile, offered a far more plausible path back to meaningful growth: its business outside North America was firing on all cylinders, including in China, where Nike was going backwards, and still accounted for only ~25% of sales in 2024 against nearly 60% for Nike. It also had superior economics, a stronger balance sheet, and, in my view, the better CEO.

With McDonald gone, however, the calculus changed. As a rule, I only invest in a company when I believe its management team, above all the CEO, is as good as or better than its peers (ideally an A+, though those are rare). McDonald cleared that bar, in my view, and he was a large part of why I invested at all. So the question became whether the board could find someone else who cleared it. I was initially hopeful: few jobs in the industry hold greater appeal, so the vacancy was bound to attract the ablest candidates, right?

Perhaps. But hope isn’t an investment strategy, so I surveyed McDonald’s peer group again and arrived at much the same conclusion as before: there were few, if any, obvious upgrades (and the best ones already had jobs). That was the primary reason I cut the position by roughly three-quarters over the following weeks.

The other reason was portfolio management. As I’ve written before, I try to let my winners run and cut my losers, but my contrarian, valuation-sensitive nature tends to get in the way: when the market starts to agree with me, I’m usually inclined to trim, particularly when the agreement arrives on light volume, rather than let it run, much less add. (There are exceptions.) How aggressively depends on three things: position size, how far the risk-reward has narrowed, and the opportunity set. Here all three pointed the same way. I held the remainder as the stock drifted lower into April.

Then came the announcement.

Already trading at its lowest forward EV/EBIT multiple since the financial crisis, LULU gapped down on heavy volume the following day and kept falling. Someone most at ease buying when the crowd is selling should have found that irresistible—provided the thesis still held. It didn’t. So I sold the remainder at precisely the point when, in theory, all the bad news should have been priced in.

Admittedly, that decision had nothing to do with the present value of future cash flows—the only reason long-term fundamental investors are supposed to sell—nor did it stem from a considered assessment of O’Neill. Rather, it was simply based on a hunch (albeit one held with supreme conviction) that the selling would persist.

It did, though foresight had little to do with it: as we will see, investors were reacting to more than just the headline. LULU ultimately fell more than 35% after the announcement, reaching a low of ~$105—roughly 80% below its all-time high—before recovering somewhat. Short interest has more than doubled over the same stretch, from approximately 3.9% to 8.8%, its highest level in a decade.

To be fair, not all of that decline can be traced to O’Neill. June brought disappointing quarterly results and guidance, along with a backlash in China—since largely subsided—over a marketing misfire on the Great Wall. The destination is the same either way: a company that was the crown jewel of its category a few years ago now trades at roughly 8× forward EBIT, which is to say it is priced as an undifferentiated brand with limited growth prospects, if any.

But are things really as bad as they look? Let’s investigate.

The Optics

In keeping with Aquitaine’s no-sugarcoating policy, I will say it plainly: the optics of O’Neill’s appointment could hardly have been worse. (The reality, fortunately, is kinder—we’ll get there.)

Three things made it look especially bad.

First, the communications blunder. In the Wall Street Journal article announcing the appointment, Executive Chair Marti Morfitt was quoted as follows:

Morfitt’s intended message, no doubt, was that Lululemon had attracted an unusually strong field of candidates and that O’Neill stood out even within it. That is not how it landed. Instead, the quote reads as though O’Neill prevailed because she was the only candidate—“except for this one”—actually willing to move to Vancouver.

Second, the Nike issue. O’Neill spent more than two decades at Nike before leaving in September 2025, most recently as president of consumer, product and brand—until that role was split into three. Whatever the merits of her résumé, the baggage was obvious: her years in senior leadership coincided with a difficult period for Nike, whose stock has badly underperformed over the past decade.

There is also the awkward fact that when Nike needed a turnaround CEO of its own, its board passed over O’Neill in favor of Elliott Hill—a former executive who had retired in 2020. That mattered more to me than it might to most. As noted, I had found Hill (though amiable) rather unnoteworthy—at least by Fortune 500 standards. So if Nike’s board preferred him to O’Neill anyway, what did that say about her?

Finally, there was the first-impression problem. After the announcement, I did what I suspect many investors did: searched “Heidi O’Neill Nike.” Among the top results was an interview from 2017, about a year after she had become president of Nike’s DTC business. By the time I arrived, the comments were piling up—none of them kind.

The YouTube comments section can be a merciless place. But it also offers a glimpse into the mind of the retail investor (at least a meaningful portion of it), which, now at roughly twice the size of institutional discretionary managers by trading volume, should not be ignored. That matters more for LULU than for most:

It was not O’Neill’s best showing. She did not project the composure or self-assuredness one would hope to see from the incoming CEO of a troubled consumer brand. That said, I suspect the reaction owed less to the substance of the interview than to the Nike “Equality” shirt—not because equality is controversial, of course, but because the slogan now reads as an artifact of peak corporate virtue-signaling: vague, costless, and almost aggressively unobjectionable. (Nike no longer sells it.)

The 30-minute impression beats the 30-second one, though—something “@kylefree33” (and his fellow commenters, one presumes) didn’t stick around to discover. O’Neill settles as the interview progresses, and in later appearances, particularly from 2021 and 2023, she comes across as more polished and confident.

All told, the market’s reaction seems to have been less a measured assessment of O’Neill’s merits than a rapid pattern-match: a Nike résumé attached to Nike’s struggles, an unflattering old clip, and a botched quote from the board. Of course, that doesn’t make the concerns about her tenure baseless. (More on those shortly.)

The Reality

I opened this piece with a quote from someone whose name will be unfamiliar to many readers. Rather than introduce him myself, I’ll leave that to the hosts of Acquired, who do it with more flair than I could:

“THREE-TIME ACQUIRED SUPERHERO, the one and only Barry McCarthy.”

Having listened to the show for years, I can say they have rarely—if ever—spoken about a guest with such unrestrained enthusiasm. That is all the more unusual because McCarthy is not some storied billionaire founder. He is a career CFO.

McCarthy ran finance at Netflix (1999–2010) and then Spotify (2015–2020), before coming out of retirement to become CEO of Peloton (2022–2024), where he saved the company from almost certain bankruptcy. Peloton was the subject of my second deep dive, published in 2024, and McCarthy was central to the thesis. The stock bottomed at ~$3 a month earlier and reached over $10 a few months later.

I mention that not to toot my own horn, but because the quote is particularly apt—and, more importantly, McCarthy sits on the same board as O’Neill: Spotify’s, where she has been a director since December 2017 and he since 2020. And Spotify’s is not a board that merely checks the boxes.

In Daniel Ek’s telling, rather than assembling directors for corporate-governance optics, he recruited people who had operated at a high level themselves—Ted Sarandos, Tom Staggs, and O’Neill among them—and he doesn’t regard them as being there for him alone. Rather than route everything through the CEO, he routinely sends directors to work through problems directly with the executives running them.

Almost everything the market knows about O’Neill comes from a handful of public appearances. McCarthy and Daniel Ek have spent close to a decade working alongside her (McCarthy first as Spotify’s CFO, then as a director)—observing how she thinks, how she exercises judgment, and how she performs when the cameras are off.

Everything I know about the two of them tells me that if she were remotely as advertised in those comments, she would not have been invited onto that board, much less re-elected every year for nearly a decade. Nor, more obviously, would she have started at the bottom of Nike’s corporate ladder and finished one rung from the top.

Which brings us back to the question hanging over this whole affair: if she’s that good, why did Nike’s board choose Elliott Hill?

The answer, I suspect, is that the decision was more a matching exercise than a referendum on ability. By 2024, Nike’s most urgent problems were merchant-related: bloated inventory and wholesale relationships strained nearly to the breaking point after years of direct-to-consumer overreach.

Hill, a 30-year commercial operator who had led sales and marketplace partnerships, was purpose-built for that repair job. O’Neill’s strengths—product, brand, and consumer—were not what the moment demanded. Now apply the same logic to Lululemon. Its problem is not wholesale distribution; it doesn’t have any. Its problem is product heat and brand energy in its core market. That is precisely O’Neill’s lane.

That still leaves the two concerns about her Nike tenure I mentioned earlier: that she led the DTC push, plainly too aggressive in hindsight, and that her senior leadership years coincided with a decade of share-price underperformance. Both are worth engaging with, and both are far more nuanced than they are usually made out to be. On the first, O’Neill was put in charge of DTC, not asked whether Nike should pursue it; a strategic reorientation of that scale is the CEO’s call, which ought to be obvious but is missing from most of the arguments I’ve seen.

On the second, Nike shares rose to more than $160 by late 2021, largely on the strength of that same DTC push, and were still around $115 in late 2023—more than double where they stood when she took the business over. The decade-long underperformance is, for the most part, a story about what happened after 2021. None of that clears her entirely, but the version in circulation isn’t the strong one.

That leaves one loose thread: can O’Neill communicate with investors?

A chief executive who cannot lay out a strategy crisply, or field a skeptical question without wobbling, pays for it in the multiple. Her 2017 interview was not reassuring on that count, and while her later appearances were considerably better, they were also lower-pressure settings.

For what it’s worth, I do think executives grow into the part, particularly once the title itself confers some of the authority, and she may present differently speaking for her own company rather than as one voice within a much larger one. Still, I can’t rule out the alternative, and her first earnings call will settle more of this than anything I can write here.

What is not in question, however, is her enthusiasm, which she radiates in a way McDonald—more reserved by temperament, though no less committed—simply did not. Whether that carries over a conference line, I don’t know. Inside the building, where morale has surely taken a hit, it has to count for something. And while she speaks with less authority than he did, I’m not convinced it’s the liability it first appears: what reads as hesitancy may be a reluctance to claim more certainty than she has. Gap CEO Richard Dickson is instructive here.

Dickson is about as fluent a communicator as this sector has, speaking with a confidence that seems wholly unburdened by self-doubt—and he has largely earned it. Since taking over in 2023, he has reinvigorated most of Gap’s portfolio, with the company posting ten consecutive quarters of positive comps through 2026. But there is one conspicuous exception: the brand competing directly with Lululemon. Athleta, on Dickson’s early telling, needed only a little patience:

“...we’re just sort of going to get through the next quarter or two as we make the changes we can to the assortment.” (Q2 2023)

“…out of our portfolio, this is a brand that’s operating in one of the most exciting segments in the industry. The performance segment is incredibly rich with opportunity. And while we are a #5 player, we’ve got enormous potential to continue to grow this brand.” (Q3 2023)

Athleta’s comparable sales did improve initially, from a 12% decline in 2023 to roughly flat in 2024. Then the trend reversed: comps fell 9% in 2025, and another 11% in Q1 2026. What was framed as a one- or two-quarter reset has now been pushed out over three years. I raise this not to criticize Dickson, whose record elsewhere speaks for itself, but because conviction in a plan does nothing to improve its odds—and may delay the search for a better one. Which is why I’m reluctant to treat O’Neill’s less commanding style as dispositive.

Athleta is worth holding onto for a second reason. It sits in the same attractive category, under a management team that has fixed nearly everything else it has touched, running a playbook that worked elsewhere in the portfolio. Gap even hired Alo Yoga’s former president, Chris Blakeslee, whose brand had been doubling revenue year after year—and replaced him after two years. Three years on, Athleta’s store base is selling around 30% less than it was. That’s worth bearing in mind before turning to Lululemon’s own numbers, which are substantially better—around -7% over the same period—and about to look ugly anyway.

In sum, I think the odds that O’Neill rises to the occasion are better than the market is underwriting. She may not prove an upgrade on McDonald. But she brings a different set of strengths, and they may be precisely the ones Lululemon needs. Its needs, however, are not small.

Trial by Fire

O’Neill takes over in September. This is the business she inherits:

Management’s FY2026 guidance offers no reprieve. Revenue is expected to be roughly flat, with the Americas down high single digits, China Mainland up ~20%, and Rest of World up mid-teens. On my estimates, that implies comps of about -10% in the Americas—Athleta territory—alongside +10% in China and +5% in Rest of World. Operating margin is guided down 380 basis points from 19.9% in 2025 to ~16%, partly on tariffs. Grim, yes, but two things temper it.

First, Lululemon has historically guided conservatively:

Second, and more important, the base from which it is declining. As I discussed at length in my deep dive, challenger brands Alo and Vuori sit at the center of the bear case—Alo in particular. My argument then was not that the threat was imaginary. It was that the familiar story, in which these athleisure “disruptors” were simply eating Lululemon’s lunch, flattened a far more complicated picture.

For example, Lululemon’s U.S. stores were generating more than $8 million in annual sales on average, against my estimates of roughly $2.5–5 million for Alo and Vuori. As a director of distribution at Vuori put it in January 2025:

“[Lulu’s] brick-and-mortar performance is unbelievable … They have just sheer volume going through these stores.” (Alphasense transcript)

Even with the recent weakness, foot traffic data suggests the gap remains similarly wide:

Lululemon also led Alo on (Google) store ratings—3.85 stars against 3.2 across the four states with the highest store density—and retained customers at roughly twice the rate. It scored far higher with its own employees, too: 81% would recommend working there, against 45% at Alo (Glassdoor). Even executives at competing brands acknowledged its edge in product quality. As a VP of merchandising at Fabletics observed last July:

“When I look at someone like Alo, it’s obvious that the quality of fabric that they’re composing and manufacturing is different. That’s where I believe [Lulu] really has a leading edge on everyone.” (Alphasense transcript)

Since November, though, momentum has moved further in Alo’s favor:

A path back to positive U.S. comps therefore looks increasingly unlikely, at least anytime soon—a problem, because at ~56% of LTM revenue, the U.S. is the only thing that will meaningfully re-rate the stock. Without it, no plausible rate of international reacceleration moves the needle.

Yet it is not out of reach, because the U.S. remains considerably underpenetrated. Lululemon operates roughly 1.1 stores per million people there, against ~1.7 in Canada, and U.S. revenue, which peaked at about 5× Canadian revenue in 2023, has since slipped to ~4.4× despite a population 8.5× larger.

Parity with the home market is unlikely, of course. But the gap is wide enough that McDonald wasn’t merely drinking his own Kool-Aid when he said that there was still meaningful share to take in the U.S. The question, then, is not whether Lululemon can return to positive comps in its core market, but whether it will, and if so, when.

Regular readers know Aquitaine insists on catalysts. Here it was a meaningful improvement in the assortment beginning in 2026:

Timing matters, too. Much of the current assortment still reflects the tail end of the former Chief Product Officer’s work, given an 18-24 month design cycle. The first full* season shaped by the new creative director won’t arrive until Spring 2026 … And by McDonald’s account, this design team—comprised of both seasoned and newly hired design leads—is “the best that we’ve ever had in the history of this organization.”

I need to correct one point from that passage. I wrote that spring would be the first “full” season shaped by new creative director Jonathan Cheung, who joined in early 2024. McDonald actually said Cheung’s influence would begin in spring 2026 and continue increasing throughout the year.

That leaves a critical uncertainty. If not much of the current assortment reflects Cheung’s work, the catalyst is still ahead, and the revised guidance may prove overly conservative. If most of it does, the catalyst has already arrived—and landed flat.

The last earnings call provides a clue. Management said it had shortened the mainline product-development process from 18–24 months to 15–16 months and is targeting 12–14. That points closer to “most of it” than “not much.” Either way, essentially the entire assortment should reflect Cheung’s work by late 2026, so the question resolves within a quarter or two. Under either reading, the ~10% implied comps decline is not reassuring. And if the new direction isn’t resonating, O’Neill can change the story in a quarter; she cannot change the product in less than a year.

Conclusion

So I’ve re-entered LULU with a small position at ~$117. Small, because the case now rests on a person who has not yet run a company, and because the evidence that would confirm or break it is still a quarter away. At roughly 8× forward EBIT the market has written off the brand and the incoming CEO together, which is ordinarily the sort of setup I’m happy to underwrite. But conviction has to be earned, and O’Neill hasn’t yet had the opportunity to earn it.

Three things would move me to add, and I’d want all three. A first call with investors in which she lays out a coherent plan for the U.S. business and handles the inevitable skepticism without wobbling. A comps trend that stops deteriorating, which the guidance already contemplates and the market plainly does not believe. And confirmation that the China backlash proves to be mostly reputational rather than financial. The reverse gets me out. If the refreshed assortment is now largely on the shelves and U.S. comps keep sliding anyway, then the catalyst I originally underwrote has failed and the next one is a year away at best.

Thanks for reading. If you enjoyed this post, please give it a like below or share it with your network—it really helps. Until next time.

Disclosure: I and/or accounts under my control hold a position in Lululemon. This is not investment advice, but my opinion as of today, which may change quickly and without prior notice. Readers are encouraged to conduct their own due diligence. Some quotes may have been lightly edited for clarity and relevance.

“Certain people believe things for understandable reasons. But those reasons are nonetheless bad reasons.” - Sam Harris

Warren Buffett has often remarked that it takes years to build a reputation and minutes to destroy one. The inverse deserves as much attention: a reputation acquired in minutes can take decades to shed. Consider Marie Antoinette, remembered for more than two centuries above all for a line she almost certainly never uttered: “Let them eat cake.” The myth survived not because the evidence was strong but because it was memorable, convenient, and easy to repeat. The truth required context, and context has never traveled quite as efficiently as a good accusation.

Which describes the lingering reputation of Airbnb co-founder and CEO Brian Chesky. For those unfamiliar, Chesky acquired the label of “overhyper” several years ago, and while the charge was not entirely without basis, it has been repeated far more often than it has been examined. A closer look at the record shows no pattern of grand promises collapsing on contact with reality. What it shows is an unusually animated CEO whose rhetoric occasionally ran ahead of his intended message. (That same zeal has undeniably contributed to immense wealth creation, but that is a separate matter.) Since going public in 2020, Airbnb has met or exceeded consensus expectations for revenue and EBIT in all but one quarter. The supposed overhype was rhetorical rather than financial – a crucial distinction.

Chesky’s commentary today is discernibly more restrained, suggesting he has learned from the scrutiny. He has also spoken openly about his suspected neurodivergence, which offers a more charitable and likely more accurate lens through which to read what might otherwise look like a genuinely disconcerting trait in a CEO. While the overhyper reputation no longer dominates investor discourse, it is still mentioned often enough to matter, and it remains at minimum a subtle interpretive filter through which Wall Street receives new information, causing current evidence to be discounted before it is properly weighed. That goes a long way toward explaining the divergence between Airbnb’s own medium-term outlook and the far more tempered expectations embedded in Street estimates.

The mismatch is especially notable given that Chesky’s recent implied guidance has been highly predictive. In September, he expressed dissatisfaction with Airbnb’s roughly 10% growth rate, arguing the company should be growing at least in the teens, before adding:

“I believe we are going to accelerate growth next year. I firmly believe that. I don’t want to overpromise what we’re going to do. But I don’t think people should take our deceleration and extrapolate that forward.”

Extrapolate they did.

In the weeks leading up to Q4 earnings, Chesky again signaled a reacceleration, both within the quarter and beyond, and the stock fell more than 10% over the weeks that followed. Then came the print: just as he had telegraphed months earlier, Airbnb reaccelerated in Q4 and guided to at least low-double-digit revenue growth for 2026.

Reputation is only part of the story. Also relevant is what I’d call a distribution problem, one I suspect will be resolved during the next earnings call or Summer Release. Investors are conditioned to expect material information through formal channels: filings, earnings calls, press releases. Most of the time that is exactly where it appears. Occasionally it surfaces in less obvious places – interviews, podcasts, offhand remarks – where it is easier to miss and, consequently, easier to misprice. That appears to be the case here.

Some context first. 2025 was a pivotal year for Airbnb, arguably its most consequential from a product standpoint since the founding. It launched three new businesses: Services, “reimagined” Experiences, and Hotels, specifically boutiques and independents. (Airbnb has long carried a small number of hotel listings, but for reasons discussed later they amounted to little more than a rounding error relative to what is now being built.) Each of these, according to management, has the potential to generate billions in incremental revenue. Yet while the commentary has been highly bullish, it has also been carefully noncommittal.

Initially, Chesky suggested these businesses could take three to five years to scale, which he effectively defined as reaching roughly $1 billion in revenue, and was careful to add that not all of them would necessarily get there. By the Q2 2025 earnings call his language had moved a notch higher:

“I think each of these could easily be a multibillion-dollar business.”

The shift was subtle but not trivial: the $1 billion benchmark had become multibillion, and “easily” nudged the implied floor higher still. The “could,” however, continued to leave room for ambiguity. CFO Ellie Mertz meanwhile remained more restrained in both scope and timing, using phrases like “significant contribution,” “material scale,” and “multiyear path.” Nothing in subsequent calls, or in the many interviews and podcast appearances Chesky gave after the Summer Launch, strayed from that calibrated framing. (For readers who want the full chronology, I’ve compiled the verbatim remarks from both Chesky and Mertz here, with timestamped links where possible.)

There was one notable exception: an interview Chesky gave in January. The first real break came in his discussion of hotels. Noting that people often fail to appreciate the sheer size of the hotel industry, which is larger than the advertising industry dominated by Google and Meta, he stated:

“We do not need a large market share of hotels to have a huge business. Hotels will absolutely be a multibillion-dollar business.”

He offered a striking example, revealing that there were over 400 million searches for New York City on Airbnb last year. Given that Airbnb is “essentially banned” in New York, adding hotels means the company “can make quite a bit of revenue” there.

Two things stand out. The language was unequivocal – gone were the qualifiers and hedges, and in their place the definitive “will.” And the anecdotal framing became hard data: Chesky had previously alluded to “millions and millions” of New York searches each year, a phrase that, though delivered with notable emphasis, dramatically understated the 400-million-plus reality. He also raised the implied floor on promoted listings, likely to roll out later this year or next, noting that “I think advertising is another multibillion-dollar business – it’s at least a billion dollars.” But the clearest break came when discussing the trajectory of the new businesses collectively:

“We basically put a horizon of three to five years for these to be multibillion-dollar businesses.”

Publicly, Airbnb had not quite done that, at least not explicitly, which suggests Chesky was either conflating internal assumptions with external commentary or believed he had already been more precise than he was. Either way, the implications are significant. Taken at face value, the comment implies consensus revenue estimates for 2028 through 2030 may be understated by at least $3 billion to $8 billion before assigning any additional value to growth in the core business, which for reasons discussed later I believe is also highly likely. That estimate excludes any contribution from additional billion-dollar businesses not yet disclosed, even though management expects Airbnb can launch at least one new one per year for the foreseeable future.

Now, to address the elephant in the room: while I clearly find Chesky more credible than most, the investment case does not depend on taking his projections at face value. There is enough visibility into the underlying assumptions, and enough supporting data, to stress-test the case independently – including the major sources of debate and concern, such as AI disintermediation, heightened competition, and regulatory challenges, all of which will be covered in depth in Part II. Having done that work, my conclusion is that Airbnb is likely to substantially exceed topline estimates while also outperforming on operating margins. Before charting the path ahead, though, we need to establish the starting coordinates.

Disclosure: I and/or accounts under my control are long ABNB. This is not investment advice, but my opinion as of today, which may change quickly and without prior notice. Readers should conduct their own due diligence. Some quotes may be lightly edited for clarity and relevance.

Brief History

Airbnb’s origin story has been told often enough that there is little value in revisiting it at length; for the fuller version, Acquired’s 2020 episode remains the best single treatment. What follows is a high-level sketch of how the business evolved.

Airbnb – then Airbedandbreakfast.com – began as a low-cost substitute for hotels, used mostly by younger, budget-conscious travelers. Early listings were often spare rooms in occupied homes, and demand skewed heavily toward cross-border travel. Over time both the platform and its user base moved steadily upmarket, helped in no small part by the fact that many early users aged into higher income brackets. As inventory shifted toward entire homes and apartments, the value proposition changed with it. The appeal was no longer simply lower prices; it was more space, more flexibility, and a different kind of travel: the promise, as the company once framed it, of living like a local. Private rooms account for less than 10% of listings today.

By 2019, Airbnb had reached nearly $40 billion in gross booking value and almost $5 billion in revenue, and had become one of the most recognizable consumer internet companies in the world. What it had not yet become was profitable.

Then came the pandemic. Within weeks Airbnb lost roughly 80% of its business and cut about a quarter of its workforce, and the shock looked potentially existential. Yet the recovery was surprisingly fast. Cross-border travel gave way to domestic trips, average stays lengthened as remote work untethered millions from the office, and family and group travel rose sharply, lifting average daily rates. Some of those effects have moderated, but several remain structurally above pre-pandemic levels: stays of 30 days or longer have settled at roughly 17% to 18% of nights booked, up from about 14% in 2019, though below the 20%-plus pandemic peak. Average trip length is now roughly four days.

Airbnb went public in late 2020 at $68 per share and traded above $140 on its first day, making it one of the year’s standout IPOs. At the time the three co-founders – Chesky, Joe Gebbia, and Nathan Blecharczyk – collectively owned about 42% of the company, with near-equal stakes and near-total voting control. As of April 2026 they still held roughly 27% of the economic interest, with Chesky and Blecharczyk together owning about 22%, while continuing to control approximately 81% of the vote. Gebbia is no longer involved in day-to-day operations but remains on the board. The company turned profitable in 2021 and now generates some of the highest free cash flow margins in the S&P 500, though not without caveats – including a notably heavy stock-based compensation load.

Business Model and Overview

“Our core business could easily be two to three times bigger—and we did $80 billion in bookings last year.” - Brian Chesky (June 2025)

The beauty of Airbnb’s marketplace model is that, unlike hotels, it “doesn’t have to pour concrete,” as Chesky put it. Airbnb doesn’t own or operate the properties on its platform; it connects guests with hosts, facilitates the transaction, and takes a fee. Asset-light, scalable, robust margins. Until very recently, that advantage was reflected in a market cap exceeding that of any single hotel operator in the world.

And yet the hotel industry itself remains far larger than the short-term rental market. In the U.S., Airbnb’s largest market, the company still accounts for only about one in ten nights away from home; the other nine go to hotels. I’ll return later to why travelers choose one over the other.

Airbnb has more than 9 million active listings across 220-plus countries and regions. Despite that footprint the business remains concentrated in a handful of mature markets, with roughly 70% of revenue coming from just five countries: the U.S., U.K., France, Canada, and Australia. By volume, EMEA accounts for the largest share of nights and experiences booked at roughly 40%, followed by North America at about 30%, Latin America at 17%, and Asia-Pacific at 13%. From a revenue standpoint, North America remains disproportionately important.

There are more than 5 million hosts on the platform, around 90% of them individuals, which makes Airbnb the largest non-professionalized supply base in the world by a wide margin. For most, hosting is supplemental income rather than a full-time business. Around 55% are women, and common occupations include schoolteachers, healthcare workers, and students. In the U.S., the average host now earns roughly $15,000 a year, up from less than $10,000 five years ago.

Supply growth has historically been organic. More than 30% of hosts were previously guests, and word-of-mouth continues to bring new supply onto the platform, helped by the fact that roughly half of new hosts receive a booking within three days and 75% within nine – significantly faster than on competing platforms. Large events have also proved powerful supply catalysts: during the Paris Olympics, more than 700,000 guests stayed in Airbnb listings while roughly 50,000 new listings were added, about 80% of which remained active afterward.

The vast majority of hosts still list only on Airbnb, though cross-listing has been rising. In the U.S., professional operators – defined by AirDNA as those managing 21 or more listings – cross-list at rates of roughly 60%, versus around 21% to 28% for non-professional hosts.

The mix between individual and professional hosts is shaped in large part by local regulation, a theme I’ll return to. It shows up clearly in the supply mix across major European cities.

Competitive Landscape

The short-term rental market is effectively an oligopoly. Airbnb, Booking.com, and Expedia, which owns Vrbo, controlled roughly 71% of the market in 2024, up from 53% in 2019. Booking and Expedia are traditional online travel agencies, offering hotels, vacation rentals, flights, car rentals, and other travel products, and their inventory is more professionalized, spanning hotels and large property managers. Airbnb and Vrbo are more narrowly focused on short-term rentals, though Airbnb’s expansion into hotels, services, and experiences is beginning to blur that distinction.

Accommodations account for the bulk of revenue at both Booking and Expedia, at roughly 90% and 80% respectively, with the remainder tied to flights, car rentals, and other products. Booking also has the highest effective take rate, averaging roughly 14.4% over the past two years, compared with about 13.5% for Airbnb and 12.3% for Expedia. Booking is particularly strong in Europe, where it holds roughly 48% share versus about 40% for Airbnb and just 2% for Vrbo. In the U.S. the pattern reverses: Airbnb leads with roughly 43%, followed by Vrbo at about 21%, while Booking trails at just 8%.

Vrbo occupies a narrower but still defensible niche. Its supply base skews toward entire homes and its customer base over-indexes toward families, group travel, longer stays, and older travelers, which gives it a clearer identity than its relative scale might suggest. Still, the long-term trajectory is hard to miss: despite a 13-year head start, Vrbo was overtaken by Airbnb within a few years and is now roughly a third its size by revenue. Google Trends is an imperfect but useful proxy for that shift.

Most bookings now happen through apps, and Airbnb leads there as well. In 2025, roughly 64% of its bookings came through mobile, versus the mid-50s for Booking and Expedia.

The Moat(s)

“Airbnb” has become nearly synonymous with short-term rentals. Guests rarely say they stayed in a vacation rental; they say they stayed in an Airbnb. Outside of Vrbo in the U.S. – and even there, to a much lesser extent – no competitor comes close to that linguistic hold. Airbnb has crossed the threshold from noun to verb, and has naturally leaned into it in its marketing: “Now you can Airbnb more than an Airbnb.” That brand strength shows up where it matters. Since the pandemic, roughly 90% of Airbnb’s traffic has come through direct or unpaid channels, well ahead of peers.

The P&L implications are not subtle. In 2025, Airbnb spent about $1.6 billion, or 13% of revenue, on brand and performance marketing. Booking and Expedia spent roughly $8.2 billion and $7.3 billion, or about 30% and 50% of revenue, on the most directly comparable measures. This is sometimes called the “Google Tax,” and Airbnb pays far less of it.

What makes the brand moat especially notable is how it was built – without the bundles and convenience of the traditional OTAs. No flights. No car rentals. No loyalty program. And, until recently, virtually no hotels. Each of those categories will likely prove necessary if Airbnb is to become the “one-stop shop for travel” Chesky envisions, a point I’ll return to.

Beneath the moat sits a classic marketplace flywheel. Greater supply, especially when it is unique and high-quality, drives more demand; more demand makes the platform more indispensable to hosts, drawing in still more supply; and that deeper supply base improves price competition and, critically, gives Airbnb more flexibility to shape the marketplace itself. The company has leaned into that advantage aggressively. Since 2023 it has been “elevating the top and cutting the bottom,” as Chesky put it, removing more than 550,000 lower-quality listings while promoting “Guest Favorites,” its top 10% of listings by rating, which now account for roughly half of bookings. The result has been fewer support interactions and better booking conversion, and together with a broader set of friction-reducing product changes, these have pushed Airbnb’s NPS to its highest level since the pandemic – “by far,” according to Chesky.

That selectivity, combined with Airbnb’s disproportionate share of non-professional hosts, has lifted the average listing rating to roughly 4.8 out of 5 stars. Competitors do not disclose directly comparable figures, but the gap is visible: in my own cross-platform work across major tourist cities, weighted-average ratings for first-page OTA results tend to fall around 4.2 to 4.3, and slightly lower when hotels are included.

Better supply → better experience → more demand → greater selectivity → even better supply. That, in a nutshell, is the Airbnb flywheel. Two further advantages help keep it spinning.

1. User Interface

Spend a few minutes on each of the major platforms and the difference is hard to miss: Airbnb’s product is, by some distance, the most pleasant to use. That has been true for years and is likely to remain true, for several reasons.

First, two of the three co-founders, Chesky and Gebbia, came from design backgrounds – and this is more than a matter of training. They live and breathe design; it is part of their DNA and, by extension, the company’s. As Chesky put it:

“I obsess over our app: its design, its interface … Everything must be perfect.”

Second, Airbnb is a technology company operating in travel rather than the other way around. The distinction can sound cliché, but it explains a great deal. By all accounts Airbnb has some of the strongest technical and design talent in the world, helped by its San Francisco base and reflected, not coincidentally, in its materially higher SBC. Finally, design quality is simply something Airbnb has chosen to optimize for, even at the expense of near-term conversion – in contrast to its OTA rivals, where conversion is the organizing principle.

Below are Booking’s and Airbnb’s search pages, both at 100% zoom.

It is not a knock on Booking to say that it feels, by comparison, like a high-performance marketplace funnel, because that is exactly what it is. The classic e-commerce persuasion cues are all there: urgency prompts, competing colors and font sizes, icons, badges. The prominently featured filters nudge the user to narrow the search if the top picks do not appeal. Airbnb does the opposite. The filter button is discreetly tucked away, the wider layout gives the page more breathing room, and there are fewer visual interruptions, stronger aesthetic cohesion, and a general sense of openness. The experience feels less like shopping and more like browsing. The page seems to have one job: make the listings look appealing.

The contrast is equally clear at the listing level.

This “beautiful merchandising,” as Chesky describes it, directly reinforces Airbnb’s core advantage: the largest catalogue of unique, non-commoditized supply.

2. Community and Trust

Reviews are a form of currency – proprietary reviews, that is – and Airbnb has more than 500 million of them. Engagement is unusually high, with roughly two-thirds of guests leaving a review after a stay, and those reviews tend to be longer and more detailed. That is not accidental. It is a direct consequence of Airbnb’s deliberate effort to foster a sense of “community,” a word that can sound soft until one considers what the product actually requires: persuading people to stay in, or hand over, private homes.

Unlike other platforms, where as Chesky has noted “you often don’t even know who people are,” Airbnb profiles are rich and consistent. Users have profile photos, visible review histories, trip counts, and tenure on the platform, none of which are shown in quite the same way on Vrbo or Expedia. Booking does somewhat better, displaying country of residence and profile photos, but adoption remains limited, and unlike Airbnb the photos often don’t show the actual user. These differences sound minor until you see them side by side.

The small touches combine to produce a not-so-small effect: Airbnb feels warmer, more personal, less transactional. More recently the company has started allowing users to see who else has signed up for a group Experience, and to message them afterward, so Airbnb is beginning to look less like a travel marketplace and more like a social platform layered onto one. That reduces uncertainty on both sides of the transaction, which matters when one of the top concerns for would-be hosts is the idea of a stranger staying in their home.

Closing Note

That’s a wrap for Part 1. Part 2 is where things get more interesting: the reacceleration case in both the core business and the new verticals, the key bear arguments – my favorite part – and valuation, catalysts, and related considerations.

Thanks for reading, and stay tuned.

A brief recap of the quarter:

• Financials: Revenue and operating income (OI) exceeded consensus estimates by 3.5% and 18%, respectively.

• Americas: Same-store sales (SSS) in the Americas declined 5% y/y—largely in line with expectations.

• International: Results were a meaningful upside surprise, driven by 25% comps growth in China (FX-neutral), accelerating from 16% in Q2.

The most consequential development, however, came on the management front. CEO Calvin McDonald announced he will step down after seven years in the role, effective January 31, 2026. While revenue tripled under his tenure, the stock’s immediate reaction suggests the market views his departure as a positive.

But is that reading correct?

In my deep dive, I argued that many of the criticisms directed at McDonald were—when properly contextualized—broadly unfair, and that I remained confident in his leadership. I did, however, flag an important caveat: if the Spring 2026 assortment failed to reignite growth, all else equal on the macro front, a leadership change would likely follow.

Against that backdrop—and with the stock now up roughly 20% since publication—this feels like an appropriate moment to take a temperature check and reassess the portfolio implications.

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• Toast (TOST): $34/share • $20bn mcap • ~23× EV/EBIT (NTM)

• Airbnb (ABNB): $117/share • $71bn mcap • ~21× EV/EBIT (NTM)

• Match Group (MTCH): $33/share • $7.8bn mcap • ~11× EV/EBIT (NTM)

Let’s get into it.

Toast

I spend a lot of time listening to CEOs, and because I’m usually hunting for exceptional businesses at reasonable prices, they tend to be a high-caliber group. Even so, it’s rare that I stop and think: this one is exceptional. Toast’s co-founder and CEO, Aman Narang, is the most recent case, for reasons that reduce neatly to two. If I were a competitor, he’d be the CEO I’d least want to compete with; if I worked in the space, he’d be the CEO I’d most want to work for.

Founded in 2013, Toast runs a cloud-based technology platform for the restaurant industry, an all-in-one POS. Revenue has gone from under $1B pre-pandemic to around $6B today, with plenty of room ahead. The company turned profitable last year, should ultimately reach adj. EBITDA margins of 40% or more, and is projected to end 2025 with roughly $1.8 billion in net cash.

Most people (myself included, until recently) think of a POS as a fancy cash register. That was true once. As Aman frames it, it’s now better understood as a restaurant’s central nervous system, coordinating orders, payments, menus, staffing, inventory, online channels and customer data.

Toast now powers more than 150,000 restaurants across the U.S., primarily SMB and mid-market operators, including more than half of those with Michelin stars. As a keen observer of behavioral psychology, I’d sit with that social-proof effect for a moment. Suppose you’re opening your first restaurant and choosing between POS systems. You learn that most Michelin-starred kitchens in the country run Toast. Absent a materially lower price, what are the odds you pick one of the alternatives?

Several hundred thousand U.S. restaurants don’t yet use Toast, and the company has barely begun to scale internationally.

U.S. market share has more than doubled since 2021, from roughly 7% to more than 15%, an impressive climb given how sticky POS systems tend to be. (Replacing one has been compared to removing a root canal.) The national figure understates Toast’s strength in its most developed cities: in these “flywheel markets”, dense pockets of customers that amplify word-of-mouth, share often runs above 30%, with win rates and conversion meaningfully higher. In Cambridge, MA, where the company is based, Aman observed that “you’d think Toast is the only point of sale.” Its share of new openings runs higher still, and monetization per location has room to grow well beyond where it sits.

Nor is the TAM limited to restaurants. Management sees several adjacent retail categories where it believes it has a “right to win” – retail food and beverage is the notable example, still early, though traction so far has been strong – and argues that these adjacencies, together with the budding enterprise business, could eventually rival or exceed the core restaurant business.

Toast has its competitors playing catch-up, and I expect that dynamic to persist. I share management’s confidence in the growth ahead, in the core and across the emerging categories both. (In my experience, when you back exceptional CEOs at sensible valuations, the surprises tend to break your way.)

Valuation: Toast trades at 23× and 17× EV/EBIT for 2026/27 on consensus estimates, implying OI margins of ~10.5% and 12% and a 19% revenue CAGR. Assuming a stable macro backdrop, I expect the company to outperform on both growth and profitability, at 15–20% OI margins by 2027, which would put at least 40–50% upside on the table and plausibly a good deal more. The balance sheet supports continued repurchases, which limits the damage if the stock pulls back; unless the thesis changes, I’d treat a pullback as an opportunity.

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Airbnb

“I keep telling people that one day this company is going to be huge - it’s going to have thousands of users.” - Brian Chesky, CEO and co-founder, recalling Airbnb’s early days.

Airbnb hardly needs an introduction. Its name is shorthand for the entire vacation-rental category, and a verb besides. (The recent marketing campaign leans into it: “Now you can Airbnb more than an Airbnb.”)

Revenue has doubled post-COVID, from ~$6B in 2021 to about $12B today, with ample runway ahead, OI margins around 22% and rising, and a fortress balance sheet carrying over $10B in net cash. The platform now has over 8 million active listings, roughly 4× Vrbo’s ~2 million, even after pruning some 450,000 lower-quality listings in recent years. Verb status, an installed base that size, and billions of reviews (roughly two-thirds of guests leave one) combine into one of the strongest moats in consumer tech, which is why ~90% of traffic arrives through direct or unpaid channels, far above Vrbo, Booking or Expedia. For the latter two, alternative accommodation remains an add-on rather than a core offering.

Most engagement has since shifted to the app, used on more than 1.6 billion devices each year, but search interest is the cleaner record of how the share war was settled.

Airbnb operates in more than 220 countries and regions and over 100,000 cities. Yet its top five markets – the U.S., Canada, Australia, France and the U.K. – account for 70% of revenue. In the U.S., its most mature geography, it now accounts for roughly one in ten nights away from home: impressive, though not the existential threat to hotels many once feared. Hotels still dominate short, highly urban and one-night stays. For longer trips, and for families and groups, Airbnb’s value proposition is hard to beat: more shared space, kitchens, outdoor areas, privacy.

The international runway is the obvious part of the story. Less obvious, and in my view not priced in, is a plausible path to doubling share in mature markets. Four developments point that way.

1) Improved UI and reduced friction. Airbnb has addressed most of its persistent pain points around quality consistency, affordability and pricing opacity. New tools help hosts price more competitively, and the shift to a single-fee model, with no separate service or cleaning line items, makes the experience cleaner and far easier to compare against a hotel.

2) Co-hosting unlocking supply. Plenty of people with homes would like to host and don’t have the time; plenty of hosts would like to host more and don’t have the capital for another property. As Chesky put it, “We’re basically existing in a very narrow Venn diagram of people that have time to host and have a home.” Co-hosting widens that diagram, and since launching late last year has already generated more than 10 million booked nights.

3) Hotels to fill the inventory gap. A large share of travelers begin their search on Airbnb and defect when they can’t find a suitable home, particularly for short urban stays. To capture that spillover, Airbnb has begun listing boutique and independent hotels directly. On the latest earnings call, Chesky described his pitch to New York operators, in a market where Airbnb sees millions of searches:

“We believe that the majority of people who come to New York on Airbnb would be open to booking a hotel if there wasn’t a home available. Many of these people are subsequently opening other apps and booking hotels elsewhere. So, we said: if we added hotels, gave you a best-in-class commission, beautiful custom-built product pages, and brought you a lot of demand – often high-income, young American travelers, which are some of the most appealing consumer sets – would you be interested?”

The answer, unsurprisingly, was an enthusiastic yes.

4) Building the “Amazon for services.” The most consequential opportunity may sit outside homes entirely. Suppose you needed to book a photographer, a private chef or caterer, a makeup artist, an on-site massage therapist. Where would you start? Thumbtack and Angi handle discovery in parts of this market, but nothing combines identity verification, integrated payments and scheduling, pre-screened providers, standardized and searchable profiles, and – critically – trusted, platform-wide reviews. Airbnb has over 200 million verified IDs to build on. It launched Services earlier this year alongside a relaunch of Experiences; below are a few examples from Toronto, where I live, with the tasting menu a Service and the other two Experiences.

Experiences were relaunched because several frictions needed addressing: they were hard to find, poorly merchandised, and not integrated with social media. Discovery, at least, will no longer be an issue.

That placement is not risk-free. Putting Services and Experiences on an equal footing with Homes, Airbnb’s highest-margin and highest-volume category, may hit conversion and could frustrate hosts. Management is clearly confident the long-term upside outweighs the trade-off. (For what it’s worth, so am I.) Many guests wouldn’t think to book a chef, photographer or massage therapist when planning a trip, but when those options surface naturally in the booking flow, you’re prompting consideration at the moment the guest already has intent.

Experiences, conversely, are often explicitly searched for, so consolidating them in the same platform makes good sense. Early results support it: roughly 10% of bookings are coming from entirely new customers, and locals are engaging heavily, accounting for about 70% of Experience bookings in Paris, one of Airbnb’s largest markets.

Taken together, these should both expand the audience and make the platform stickier. As Chesky noted on the last call:

“We believe that services, experiences, and hotels could each be multi-billion-dollar businesses.”

Valuation: At ~$117/share as of this writing, Airbnb sits well below its all-time high and meaningfully under its ~5-year VWMA of ~$137, trading at about 21× EV/EBIT (NTM). Given the growth trajectory and expected margin expansion, that strikes me as very reasonable. Based on my work so far, I expect Airbnb to exceed earnings expectations in 2026/27, assuming a stable macro backdrop. Consensus implies a 2027 EV/EBIT multiple of ~17×; my base case is closer to 15×. Unless I’ve misread or overlooked something material, which as always is possible, I’d expect the stock to work its way into the $150–$200 range.

Match Group

“We need to improve the perception of the [online dating] category. And the way to do that is to prioritize user outcomes over short-term revenue and profit. That has not been the way this company has operated historically, and that’s been to our detriment.” – Spencer Rascoff, CEO, Match Group

It’s far more efficient to read transcripts, but I try to listen to as many earnings calls as I can, because the text alone leaves out a surprising amount of signal. Match is the clearest example I have of why that habit matters, and it also makes this the hardest of the three to capture persuasively in writing.

With more than 20 brands and roughly $3.5B in revenue, Match is the clear category leader in online dating, with operating margins around 25% and room to expand. Unlike the previous two ideas, it carries leverage: just under $3B in net debt, or roughly 2.3× adj. EBITDA. It owns two of the three major Western apps, Tinder and Hinge, with Bumble the third. Hinge is the growth engine; Tinder, the #1 dating app by downloads in more than 100 countries, is the cash cow with some brand baggage.

The category has been shrinking, or at best stagnating, for several years, though it remains the primary way people meet. The open question is whether the industry is structurally broken or simply overdue for a reset.

Only time will answer that. But one person who clearly believes it’s fixable (yes, you guessed it) is Match’s new CEO, Spencer Rascoff, who wouldn’t have taken the role if he thought otherwise. Spencer is the co-founder and longtime CEO of Zillow Group. Put differently: he doesn’t need the paycheck, and he wouldn’t have stepped in unless he believed he could engineer a turnaround.

I cannot overstate the contrast between Spencer and his predecessors, three CEOs since 2017. All were capable operators and, by all appearances, good people, but that doesn’t make someone a leader capable of inspiring thousands of employees to do their best work. Indeed, the contrast with his immediate predecessor is stark enough to call to mind Churchill and Chamberlain in 1940: only one was capable of rallying a nation in the face of overwhelming odds. (If you’ve listened to their respective earnings calls, you’ll know that isn’t hyperbole.)

Spencer joined the board in 2024 and became CEO in February 2025. His first priority was rebooting the culture, though he described it more forcefully as “shaking the company from a slumber.” Match, he noted, is a category roll-up spun out of IAC that never fully extracted the benefits of its combined scale; Zillow is successful in part because it did exactly that.

“When I got here 100 days ago, it was really run as 20 different companies. Each app basically as their own company with its own Head of Marketing, its own Head of Technology, its own Head of Engineering. And I’ve changed a lot of that, and I’ll continue to, because there are enormous synergies to be had by recognizing the combined power of Match Group.”

Ironically, that same independence is what allowed Hinge to thrive and maintain a “very impressive and distinctive company culture, with highly engaged employees,” as Spencer put it, in sharp contrast to Tinder.

During his first quarter, Spencer reduced the workforce by 13%, including one in five managers, and was quick to emphasize that isn’t what he came to do:

“I know how to cut costs, but that’s not what gets me up in the morning. What gets me up in the morning is being a product innovator, and building cool stuff that drives user outcomes, that grows audience, that grows revenue. I’m a growth CEO.”

Recent data might make that comment sound out of sync with reality, as it might his remark that “I’m optimistic that one day we’ll look back and see the TAM in online dating was much larger than any of us expected.” But 220 million people who are actively dating and have never used an app is a large number to write off as a structurally dead category, and the bulk of them sit in developing markets where penetration runs in the single digits.

Conventional wisdom frames the online-dating model as a paradox: the better the product is at making the right matches, the faster it loses its customers, and the worse that is for revenue. Hinge, which dominates the “intentioned” category, is the useful counterexample. Its success comes from a precise understanding of the job it exists to solve, which is to be the last dating app you’ll ever need. It is, literally, “designed to be deleted.” That mindset is now being pushed across Tinder and the rest of the portfolio. I won’t unpack every recent feature here, though I’m optimistic about several, but the company is plainly operating with renewed urgency:

“By many measures, such as code commits or experiments that we have in-flight, we’re operating at about twice the pace as we were just a couple of quarters ago.”

I expect the products to keep improving and resonating more with users, and the perception of the category to gradually recover. As the category leader, Match has outsized influence in making that happen.

Match also holds the best competitive hand. Its primary challenger, Bumble, is also in turnaround mode, is roughly a quarter of the size, and in my view is far less likely to land the plane. The more interesting threat comes from social-media giants like Facebook, which launched its dating product in 2019 with one simple advantage: it’s free. It now claims 21 million daily users, the vast majority over 30. That’s worth monitoring, but it may sound more ominous than it is, given that dating is, and always has been, a multi-app category.

Extrapolating recent trends here would be unwise, particularly given the scale of the internal changes Match has undergone.

Valuation: Match trades at roughly 11× EV/EBIT (NTM). If the company can maintain momentum at Hinge, which still has substantial international runway, and simply stop the bleeding at Tinder, I’d expect the multiple to re-rate closer to 13–14×, roughly the three-year average. If Tinder can return to even modest growth, 15× or higher is plausible. The upside significantly outweighs the downside over the next 12–24 months, absent a fundamental change to the thesis.

If you enjoyed this post, a quick thumbs-up – or a share with your network – goes a long way. Until next time.

Disclosure: I and/or accounts under my control hold positions in the securities discussed. This is not investment advice. Readers are encouraged to conduct their own due diligence. Some quotes were lightly edited for clarity and relevance.

Less than a year ago, in December 2024, Jim Cramer told Lululemon CEO Calvin McDonald that he thought the company was “the best story out there in retail right now.” He added:

“Everyone I talk to says China is a disaster; there’s no selling. Everybody tells me there’s no such thing as new; it’s all old. Everybody tells me it’s the most promotional Christmas in history; you have no promotions, you have newness, and you’re doing well in China. What are you doing right that the others are doing wrong?”

It’s remarkable how quickly sentiment can flip. If Cramer’s starry-eyed tone didn’t already give it away, Lululemon was—until very recently—the crown jewel of the apparel category.

Over the past decade, the company compounded revenue at roughly ~19% annually, despite already being a multibillion-dollar business at the outset. More impressive still, it did so while sustaining ~20.5% operating margins—more than twice the peer-group average of ~8% (Nike, Adidas, Under Armour, Puma). Businesses don’t produce numbers like that at scale without a moat of real depth.

The prevailing view today, however, is that the moat has drained. Even after a roughly 65% drawdown from its peak less than two years ago, short interest remains at a multi-year high of 6.2%. That might make sense if Lululemon were truly “running out of gas and it’s not fixable,” as one analyst claimed. The evidence, though, points elsewhere.

The bear case centers on falling U.S. comps, heavier discounting, and “hot” challenger brands nibbling at the edges. These are fair concerns—but context matters. The recent declines (–2% and –4% in Q1 and Q2, versus 0% and –3% a year earlier) come on the heels of a decade of near-uninterrupted hypergrowth. They also appear more symptomatic of internal complacency than external defeat—a lapse management has acknowledged. As McDonald said:

“I now believe we have let our product life cycles run too long. We have become too predictable within our casual offerings and missed opportunities to create new trends.”

Given the company’s extraordinary run, it’s hard to fault them for sticking with a winning formula a little too long. (Most of us would have done the same.)

These declines also occurred against a softer category backdrop. “Consumers are spending less on apparel overall, spending less in performance activewear, and are being more selective in their purchases,” McDonald explained. Yet even then, Lululemon continued to gain share within premium activewear in both Q1 and Q2—just as it did in Q2 and Q3 of 2024, when comps were also slightly negative.

So while there’s clearly work to do, the notion that Lululemon is “broken” doesn’t hold up. Even a director at athleisure “disruptor” Vuori dismissed the claim outright: “I think the argument that they are getting stale is not a valid one.”1 An executive at competitor Fabletics agreed: “As a millennial myself, I don’t think Lululemon is getting stale.”2

Timing matters, too. Much of the current assortment still reflects the tail end of the former Chief Product Officer’s work, given an 18 to 24-month design cycle. The first full season shaped by the new creative director—and by Lululemon’s revamped design and merchandising model—won’t arrive until Spring 2026.

And by McDonald’s account, this design team—comprised of both seasoned and newly hired design leads—is “the best that we’ve ever had in the history of this organization.”3 If that’s even directionally true, and my research strongly suggests it is, then declaring the brand finished seems premature at best.

The question, then, isn’t whether Lululemon can course-correct, but whether it will. And if you’ve read this far, you can probably guess where I land on that question. Even if the recovery takes longer than investors might like, today’s valuation offers ample margin of safety for those willing to wait.

That margin already prices in the usual anxieties: fiercer competition, “dupes,” shifting style trends, Gen-Z fickleness, tariffs, and macro uncertainty. We’ll return to each in due course.

But before we dive in, a little historical perspective:

• Jim Cramer, September 2016: “Should we be worried about Lululemon here, given the recent heinous action in the stock and the constant worry of the analyst community that athleisure has peaked?”

• Professor Aswath Damodaran, April 2019: “I’d bet on Levi’s over something like a Lululemon, which will be a distant memory. The problem with brands today is that they build up really fast and don’t have roots. And millennial consumers don’t have loyalty.” (Notably, Damodaran said this despite Lululemon already being 20 years old—with a customer base among the most loyal in the industry.)

Investor anxieties, in other words, are rarely a reliable predictor of what happens next.

Thesis Overview

1. Highly profitable. Lululemon’s operating margins remain exceptional—roughly 16 points higher than peers—reflecting a business model that converts growth into profit with unusual consistency. (The company is also strikingly frugal for one so profitable—a rare and underappreciated trait, and not a coincidence.)

2. Store productivity. Despite industry-leading digital penetration among scaled players (~44%), stores generate nearly $1,600 per square foot—about four times the mall average.

3. Loyal, resilient customer base. Lululemon’s customers are exceptionally sticky. “Ninety-two percent of our loyal guests continue to shop with us year in and year out,” McDonald said in 2019. “I’ve never seen another [apparel] brand with that type of engagement.” They also skew more affluent and are therefore less exposed to economic shocks. Even in the depths of the 2009 financial crisis, operating margins held at 19%.

4. Marketing leverage. Lululemon’s stores double as brand billboards. Combined with strong brand equity, this allows the company to maintain marketing spend well below peers—a structural advantage that compounds returns and frees up capital for reinvestment elsewhere.

5. R&D edge and the flywheel. Product innovation is one of those reinvestment areas, where Lululemon invests more heavily than most. Continuous improvements sustain premium pricing and repeat purchases, which in turn fund further innovation—a self-reinforcing loop that strengthens the brand over time.

6. Extraordinary economics. These forces together produce exceptional returns on tangible capital, far above industry norms.

7. Growth runway. Only about 25% of sales come from outside North America—versus roughly 55% for comps—leaving significant international whitespace. Lululemon also remains underpenetrated in men’s, which represents just 24% of sales, well below the 50%+ typical for activewear brands (Nike is closer to 70%). Further gains are likely from co-located store expansions, which have historically driven productivity increases well in excess of the associated growth in square footage.

8. Financial strength and downside support. The company holds roughly $2 billion in cash, carries no debt, and continues to repurchase shares aggressively—roughly $4.5 billion since 2019—providing considerable downside protection. (The scale and prices of those buybacks have raised concerns, which we’ll address later.)

9. Valuation gap. Despite superior economics, vast international whitespace, and robust balance sheet, Lululemon trades at a steep discount to peers—a disconnect unlikely to last.

Lululemon also trades at a steep discount to its closest private-market competitors, Alo Yoga and Vuori, each valued in the $5–10 billion range, or roughly 5.5× sales. By comparison, Lululemon trades at just ~1.8× forward sales.

Taken together, Lululemon’s historically washed-out valuation, coupled with ample capacity for additional repurchases, provides significant downside support at current prices.

Disclosure: I and/or accounts under my control hold a position in Lululemon’s stock. This is not investment advice. Readers are encouraged to conduct their own due diligence. All figures are in USD unless otherwise noted. Some quotes may be paraphrased or lightly edited for clarity and relevance.

Brief History

“Demand and growth have been steadily up and to the right for really two decades now, and so not to say Lulu is invincible, but I have been impressed with how they’ve been able to prove their staying power over time. And I think the moment I realized that Lulu was here to stay was probably when I found myself happily spending a couple hundred bucks on their men’s clothing with many of my friends doing the same, after thinking it was a brand only for women for about a decade.” - Shawn O’Malley, The Intrinsic Value Podcast

Founded in Vancouver in 1998 by apparel entrepreneur Chip Wilson—an eccentric and occasionally controversial figure who left the company in 2015 but remains a major shareholder (~8%)—Lululemon began as a women’s yoga line, a notable inversion in an industry long geared toward men.

Until then, leggings were simply something you wore to work out. Wilson’s billion-dollar insight was to make them look good, too. By merging form and function, Lululemon’s leggings were technical enough for the studio yet stylish enough for the street—helping ignite the trend of what would soon be called athleisure.

The company broke convention in other ways as well. It sold exclusively through its own stores, allowing it to “own” the customer relationship and cultivate an aura of exclusivity. Its refusal to discount—almost heretical in retail—only reinforced that mystique, aided by an unusually generous return policy.

Then there were the bags. The brand’s red-and-white reusable shopping totes—“the first grocery bag, at least in New York, for sure,” as one former executive recalled—became ubiquitous, doubling as both status symbols and walking advertisements.

Together, these elements gave Lululemon something rare in fashion: genuine cross-generational appeal. Ordinarily, being cool to soccer moms and cool for their daughters is mutually exclusive—but Lululemon managed both.

Over time, the company expanded well beyond women’s yoga wear—broadening its athletic range (tennis, golf), adding lifestyle apparel, and moving into men’s clothing (2014), accessories, and footwear. It would, of course, also make its mark internationally.

Company Overview and Business Model

Fast forward to today: Lululemon operates roughly 800 stores—about two-thirds in North America—generates around $11 billion in annual sales, and counts 30 million members. Its product mix skews about 60% performance and 40% casual, anchored by durable core franchises; around 40% of styles sell year-round.

About 90% of revenue comes from company-owned stores and e-commerce. The remainder stems from temporary pop-ups, select wholesale accounts (including university retailers), and outlets for slower-moving or prior-season inventory—52 globally, mostly in the Americas—plus a handful of international licensees.

Over the five years ending 2024, Lululemon added 276 net new stores, roughly two-thirds of them outside North America.

Stores are concentrated in premium retail corridors—street-front locations, tier-one malls, and other high-traffic zones. Designs can vary significantly by region, but the brand identity is unmistakable.

Average store size has expanded about 50% over the past decade—from 3,000 to 4,500 square feet—through a mix of new builds and co-located remodels. While sales per square foot have remained roughly flat in nominal terms, e-commerce penetration has more than doubled—from ~21% of sales in 2016 to ~44% today (two-year average). That places Lululemon among the highest digital-mix apparel brands at scale.

It’s also one of the most profitable, with operating margins in the low 40s. That profitability reflects three structural advantages:

1. Unusually high customer retention

2. long-lived core franchises (Align, ABC, Scuba)

3. Highly consistent fits—once a customer knows they’re a size 30 in ABC, they can reorder online with confidence

Fit consistency, in turn, drives cross-category purchasing, while in-store returns help minimize reverse-logistics drag on margins. Lululemon’s near-pure direct-to-consumer model carries a structurally lighter net-working-capital load than wholesale-heavy peers, offset by a heavier fixed-asset base tied to its owned-store footprint. Taken together, the differences tend to net out.

Style

Lulu describes its product as “high performance, high style”—always in that order. “It all starts at the fabric level for us,” McDonald explained. “We obsess over the performance and feel of fabrics.” We’ll return to performance shortly; first, the aesthetic.

You might think of “high style” as a kind of refined minimalism—tailored fits and a quietly polished look. While more adventurous competitors might lean into bright neons or bold tri-color patterns, Lululemon’s palettes stay simple: cool or warm (not hot or cold), and rarely both. The payoff is versatility—pieces that move easily from one activity to another.

Internationally, Lululemon may adjust its assortment to local tastes, tweaking color and fit on a portion of its global line to better resonate with regional guests. In China, for instance—its most localized market—these adaptations account for roughly a quarter of sales, with another 10–15 percent designed and developed locally.

Over the past year, new styles—“newness” in industry parlance—have made up about 23% of the assortment globally. (Newness can also refer to new colors or prints applied to existing silhouettes.)

“The Bread and Butter”

“I think the fabric; that’s the bread and butter. Working at Under Armour, we had a lot of consumer insights that our fabric wasn’t where it needed to be. We used to look at Lulu and Nike and say like, “How can we replicate this?” With Lulu’s fabric, it was just impossible.”4 - Former Senior Manager at Under Armour

Lululemon sits at the frontier of technical apparel innovation—and for good reason. The company employs hundreds of specialists devoted to product development through its Whitespace Lab and dedicated R&D facilities. To put that in perspective, a director at Gap-owned Athleta explained:

“Athleta had a couple of raw materials people, but they were servicing the entire business, whereas Lulu has PhD-level scientists working on fabric innovation. That’s going to make a difference if you’re bringing your own research to the table with the mills and actually developing proprietary fabrics.”5

As implied above, most of the scientific heavy lifting in apparel happens at the mill level, not within the brands themselves. Brands typically request adjustments to an existing mill construction—tweaks to fiber ratios, yarn counts, gauges, or finishes—rather than commissioning a fabric from scratch. Any exclusivity they receive is usually brief, often limited to a single season.

Lululemon’s scale, deep supplier relationships, and collaborative development model extend that advantage dramatically—often securing exclusivity windows of 18 to 24 months or more. In many cases, it goes further still, owning the patents outright.

Supply Chain

Lululemon’s supply chain is built around a network of about 52 manufacturing partners and 67 fabric suppliers. Roughly half of total production comes from its top five vendors, with manufacturing concentrated in Vietnam (40%), Cambodia (17%), Sri Lanka (11%), Indonesia (11%), and Bangladesh (7%).

Material sourcing is similarly concentrated: about 52% of raw materials come from the top five suppliers, the largest of which accounts for 18%. Roughly three-quarters of fabric originates from Taiwan (35%), China (28%), and South Korea (11%).

Lululemon’s scale and deep, long-standing supplier relationships give it real operational leverage. By committing to massive yardage and paying premium prices, it secures access to top-tier mills and manufacturers—and priority production slots—allowing it to ramp output quickly when demand spikes.

The company operates multiple distribution centers across the U.S., Canada, and Australia to handle both e-commerce fulfillment and store replenishment. Distribution in all other markets is outsourced.

Grassroots Marketing

Lululemon may be the only apparel brand in history to reach global scale without the help of major celebrity endorsements or superstar athlete sponsorships. More remarkable still—it did so while spending next-to-nothing on traditional advertising.

Instead, the brand built its identity around an unconventional ambassador network: local yoga instructors, trainers, and “sweat leaders” who embodied the lifestyle rather than merely sold it. The strategy worked hand in hand with its focus on experiential marketing—community workouts, in-store yoga sessions, and other events that remain central to its playbook today.

When opening new stores, most retailers rely on the usual playbook—discounts, giveaways, and opening-week sales. Lululemon, by contrast, takes a different tack: it makes the event feel like an experience rather than a promotion. At its Covent Garden opening in London, for instance, the company hosted a live DJ and parked a bright yellow, retro-style coffee van out front.

Over time, this community-first strategy evolved. The company layered in a global tier of ambassadors—higher-profile athletes and wellness personalities, though still short of household names. That changed this year, however, with Formula 1 champion Lewis Hamilton, Lululemon’s first truly global celebrity partnership.

Even so, the partnership marks an evolution, not a departure, from its ambassador model. According to Chief Brand Officer Nikki Neuburger, the company intends to maintain a “tight roster” of values-aligned athletes.

Competitive Landscape

Lululemon competes across two segments: premium activewear, which accounts for roughly 60% of sales, and casual or lifestyle apparel, which makes up the rest. The latter label, however, is somewhat misleading—these are still performance fabrics, not true substitutes for conventional leisurewear.

Within activewear, its mid-tier competitors include Nike, Adidas, Under Armour, and Puma. Its closest rivals, however, are Alo Yoga and Vuori—both priced similarly and chasing the same active-lifestyle overlap. Athleta and Fabletics sit lower on the premium spectrum, both in price and quality.

Across core categories—leggings, joggers, hoodies—the top three brands cluster tightly between $98 and $144. Alo skews $10–20 higher on basics, though its fashion-forward drops can run north of $1,000. Lululemon rarely crosses $200 outside outerwear. Nike and Adidas price roughly 25–35% lower, while Athleta and Fabletics sit 10–20% below that—frequent discounts widen those gaps even further.

While apparel is, by nature, a low-growth industry, activewear has been a bright spot—a trend expected to continue through 2030–33. According to Grand View Research, the global athleisure market is projected to grow at a 9.3% CAGR through 2030 (see footnotes for more on secular trends6).

Within activewear, the premium tier continues to take share. Hard data are limited, but the chart below offers a reasonable proxy.

Isolating the premium segment:

Lululemon’s U.S. business has nearly tripled since the late 2010s, but Alo and Vuori have been the biggest relative gainers. Some of that came at Lulu’s expense—maybe a few points of share, on average—but most was drawn from Athleta and Fabletics, whose combined share has fallen sharply.

Google search data provides a rough proxy. In 2018–19, Athleta and Fabletics made up roughly 30% of total searches in this group versus about 10% for Alo and Vuori. Today those numbers are nearly reversed (~12% and ~30%). Lululemon still leads with about 60%, only a touch below its long-term average.

Our focus here, then, is on Alo and Vuori—Lululemon’s most serious challengers.

The Athleisure “Disruptors”

• Alo Yoga — Founded 2007. Roughly 170 stores or “sanctuaries,” with ~65% in the U.S. Estimated $1.5–2 billion in revenue. Customer base skews heavily female (likely north of 85%).

• Vuori — Founded in 2015 as a men’s brand. Roughly 120 stores, ~95% in the U.S., with revenue near $1 billion. Since launching women’s apparel in 2018, that segment has grown to ~50% of sales.

Brand Positioning

Both brands lean more fashion-forward than Lululemon—especially Alo, which differentiated itself early on with a looser, streetwear-inspired aesthetic. (The kind that plays especially well on TikTok and Instagram.)

Alo has, in effect, positioned itself as the “cooler” Lululemon—and among Gen Z, it’s largely succeeded. That said, it markets itself less as a performance brand than a luxury lifestyle label. That’s evident in its celebrity ecosystem—anchored by the Jenner sisters, Hailey Bieber, and Bella Hadid—and notably light on athletes.

The contrast in brand DNA is obvious from their respective Instagram feeds.

Alo’s identity is also distinctly feminine, unlike Lululemon’s. So while the two brands share some audience overlap, their core customers are not the same (more on this shortly). Vuori, meanwhile, is equally aspirational but more grounded in performance and versatility. Some liken it to a California version of Lululemon.

Both spend meaningfully more on marketing as a share of sales—as you’d expect from younger brands still buying awareness—especially Alo. Their paid web traffic (per Semrush) runs several times higher.

Stores

Their store fleets are newer and larger (on average), with roughly 85–90% of locations sitting within a mile of a Lululemon. The assortments are tighter, with fewer SKUs, and merchandising leans heavily on color coordination—especially at Alo—to encourage matching-set purchases.

Lululemon’s stores, by contrast, were historically organized by “destinations” (leggings here, bras there), though they’ve become more outfit-driven in recent years.

Some shoppers find Lulu’s stores as more cluttered by comparison—an impression likely amplified by smaller, legacy locations. The trade-off is breadth: Alo and Vuori may look cleaner, but they offer less selection.

“[Lulu’s] brick-and-mortar store performance is unbelievable,” observed a director at Vuori. “They have just sheer volume going through these stores. They’re fully stocked with literally thousands of SKUs, whereas an Alo store has a lot less selection.”

Lululemon’s U.S. stores average more than $8 million in annual sales, compared with an estimated $2.5–5 million for Alo and Vuori.

Design and Product

On trendiness, Alo has led the pack lately. But that doesn’t explain its higher pricing—nor does product quality, for that matter. As a VP at Fabletics put it:

“When I look at someone like Alo, it’s obvious that the quality of fabric that they’re composing and manufacturing is different. That’s where I believe [Lulu] really has a leading edge on everyone.”

Alo’s quality is widely viewed as the weakest of the three, with recurring complaints of pilling, stretching, and premature wear—sometimes so extreme they strain belief. The issue, though, is less about quality alone than perceived value. As one fashion YouTuber observed:

“I honestly don’t see why this hoodie should cost over $200. If you told me that it was from Walmart, I’d believe you.”

(She did, however, praise Alo’s Airbrush leggings and overall design aesthetic.)

Shift Fashion Group, a fashion studio and manufacturing consultancy, reached a similar conclusion after a detailed teardown: Alo’s products, they found, are “designed to sell, not to last.”

Vuori performs better on that front but still trails. While difficult to quantify, Shift’s comparative scorecards for two of each brand’s top-selling items provide as close to an objective benchmark as you’ll find. (For those interested, teardown videos are linked [here] for Lululemon and [here] for Vuori.)

Note: given the evidence already presented regarding Lululemon’s quality edge—from premium peers falling short to the former Under Armour executive calling its fabric replication “impossible”—I’ll assume most readers don’t need a primer on why simply matching a yarn blend (e.g., 81% nylon, 19% elastane for Nulu) won’t yield the same result. For those curious, see footnotes.7

Further proof of Lululemon’s quality advantage shows up in its retention data.

Customer experience likely plays a role as well. In the four states with the highest store density—California, Texas, New York, and Massachusetts—Alo averages just 3.2 stars across 3,800+ Google reviews, versus 3.85 for Lululemon (8,000+) and 4.15 for Vuori (1,000+).

(Note: Lululemon’s newer stores score higher on average. In London and Paris, for instance, stores average ~4.3 stars across 1,600+ reviews.)

Employee sentiment mirrors this pattern. On Glassdoor, only 45% of Alo employees would recommend working there, compared with 81% at Lululemon and 68% at Vuori.

To be clear, that doesn’t mean Alo’s customers or employees are unhappy; it simply underscores a meaningful gap in two key indicators of long-term business health—one that’s unlikely to close without significant leadership change on either side.

Market Share

Still, there’s no question Alo has taken some share from Lululemon. The simplest test is counterfactual: if Alo didn’t exist, where would most of those sales have gone? Probably to Lulu.

According to Earnest Analytics, 63% of Alo shoppers also shopped at Lululemon in the 12 months ending April 2024. However, the overlap runs mostly one way: only 4% of Lululemon customers shopped at Alo during the same period.

The takeaway: Alo’s audience overlaps with Lululemon’s, but it isn’t the same. Alo’s customer skews younger, more trend-driven, and less performance-focused. Lululemon’s base, by contrast, is older on average, more affluent, and markedly more loyal.

When asked in September about the relationship between these “hot” challengers and softer U.S. results, McDonald hardly sounded like someone conceding ground. On the contrary:

“There’s still a lot of share for us to gain and grow [in the U.S.]. When I look at the competition, we know when we deliver, we win.”8

We’ll return to Lululemon’s remaining U.S. growth potential later.

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