Airbnb Raises Over $100M as It Touts Strong Growth | Hacker News Reader

Airbnb Raises Over $100M as It Touts Strong Growth

wsj.com

37 pointscoloneltcb58 comments

1) This is a press release from a PR person in the company. There is no "person familiar with the matter" who is willing to risk their reputation and career to leak internal metrics of the company.

2) This is a follow-on to their last round of funding, not a separate capital raise. The valuation did not change. They likely had an interested party that missed the boat, got nervous about being left out, and agree to the same terms. Little distraction for the company + money at known terms + small stake (.4%) + press = #yes.

3) AirBnB takes a 15% cut on bookings. A stable company might have a price/earnings ratio of 5x. So for them to have a $25 billion valuation, that's $5 billion in revenue or $33 billion in bookings. That means they would need to grow ~24.5x their current size (either without raising again or raising at the same valuation) to justify this.

According to an industry association[1], sales in 2013 for all lodging in the US was $163 billion. Yes international, but that's for the largest GDP in the world and there are non-zero costs in marketing/sales/regulation/data security to entering other markets.

[1]: https://www.ahla.com/content.aspx?id=36332

EDIT - I was wrong about the fee, thank you richiezc!

2) Agree, this is likely the case

3) From the article: "Airbnb generates revenue by taking a 3% cut of each booking along with a 6% to 12% service fee from guests. Based on the third-quarter numbers, it appears the company is collecting a maximum fee from guests, with revenue running at about 15% of bookings."

I was wrong about the revenue they make on bookings, thanks for pointing that out. That's closer to reality, but the numbers still feel aggressive. Along with the earlier $1 billion, they need to turn that into $24 billion in revenue.

1. "A stable company might have a price/earnings ratio of 5x"

You're way off on PE's.

The Shiller PE is 26* right now. P/E moves inversely with interest rates. With rates around 1% (i.e. driving up P/E's) only distressed companies trade at 5x P/E ratios.

2. "AirBnB takes a 3% cut on transactions"

You overlooked 2/3 of their revenue.

"Airbnb generates revenue by taking a 3% cut of each booking along with a 6% to 12% service fee from guests"

3. "for them to have a $25 billion valuation, that's $5 billion in revenue or $167 billion in bookings"

The relevant data is in the article. Note they made $340 on $2.2B of bookings (about %15 of bookings).

"Airbnb generated $340 million of revenue in the third quarter, on bookings of $2.2 billion". You can just annualize that. Current run rate revenue is ~$1.4B. Current run rate bookings are ~$8.8B.

I don't have an opinion on the valuation but I can understand how they could be worth $25B. Airbnb's incremental cost for processing customers is probably close to zero. If they double bookings again, they'd double top line revenue ~$3B. I could easily see $1B of that flowing to the bottom line.

Also there are network effects/customer captivity at play that bode well for the long term. What do I mean? It would be hard to create a competitor to Airbnb because no one wants to establish their reputation on more that 1 platform (same under-appreciated advantage Ebay has).

*http://www.multpl.com/shiller-pe/

All of that checks out, but:

> It would be hard to create a competitor to Airbnb because no one wants to establish their reputation on more that 1 platform (same under-appreciated advantage Ebay has).

Bookings.com is a pretty strong competitor to AirBNB in some market segments.

Raising $100M at a $25B valuation means someone paid $100M for a .4% stake in AirBnB, which is both surprising and amazing to me. This does ignore whatever preference and specialized terms the stakeholders were given. And of course, the buyers aren't necessarily saying they think the company is worth $25B, they are saying they believe the market will value it at more than $25B at some point in the future.

Your last statement is not necessarily true.

That's the funny thing about startup valuations; they are not an apples-to-apples comparison to a public market. In fact, a savvy investor may be willing to invest $100M at a $25B valuation knowing full well there will never be a liquidation event worth $25B. It all depends on the deal terms (preferences, ratchets, etc.).

It's entirely rational to invest $XM at $YB valuation when your deal terms stipulate a minimum return of ($XM * 1.25), regardless of valuation.

Which leads to the conclusion that without knowledge of the terms of the deal it is a bit of a weird thing to value the entire company based on that deal. Because such a deal should be discounted based on the terms not applying equally to the rest of the shares already created.

"AirBnB raises $100m which gives them an unknown valuation due to the complex financial terms of the deal" just doesn't draw as many clicks on your story

My first reaction was the 37signals prank a few years ago:

PRESS RELEASE: 37SIGNALS VALUATION TOPS $100 BILLION AFTER BOLD VC INVESTMENT [1]

1: https://signalvnoise.com/posts/1941-press-release-37signals-...

I don't understand. What would they need that kind of money for at this point? Surely they are raking in lots of revenue?

> This year, Airbnb expects an operating loss of about $150 million

This seems strange. Maybe a single investor wanted to get in pretty badly.

No paywall: http://on.wsj.com/1Ojvrh6

FWIW also no paywall if you save to Instapaper.

Airbnb is a great company but they seem unnecessarily greedy. They shouldn't allow people to rent out apartments without neighbor consent. They should limit the number of days that people can rent their homes. And they shouldn't allow companies to operate dozens of Airbnb locations as de facto hotels.

These are the kinds of reasonable regulations that will happen to them eventually, if they don't put constraints on themselves.

Why?

Your "shoulds" sound like arbitrary rules to make some people comfortable at other peoples' expense.

The flip side is also true, the lack of "arbitrary" rules are sometimes making airbnb guests comfortable at the expense of neighbors/communities.

Isn't it the case he's making that there should be sensible middle ground?

At some point, we're going to need to decide what's more important: tech startup revenue/profits or quality of life.

Unfortunately there are two different concepts of "we" at play. The "we" who get pushed out of our neighborhoods by tourism-driven rent increases will most certainly not be the "we" who decide what's more important.

The "we" who votes is most important.

What about the "we" who like to travel, stay in nice apartments, and rent out their apartment while we're gone (because we're not plutocrats)?

Vote. That's how democracy works. If you lose, you accept your loss.

And when you say "apartment", I'm assuming you mean with permission from your landlord/management company with a lease that doesn't prohibit unapproved sublets, right? Because to do otherwise would violate their property rights.

Travelers can't vote. That's an incredibly reductionist answer.

That's my point; travelers don't get a say in local politics. Its up to the local populace to decide what they want.

> Its up to the local populace to decide what they want.

Thinking that's the solution to every problem is rather naive. For one thing, it's a great way to abuse minorities for the minor benefit of majorities.

More importantly, it ignores the fact that actions can have externalities far beyond a local jurisdiction. Just like a town shouldn't be able to "vote" to rob everyone who drives on their highway (or, more realistically, eliminate air quality controls), neither should it be allowed to have complete control over travel regulations. Travelers might not be a constituent in local elections, but travel and interstate commerce does have key externalities.

Regardless of perception, local politics dictates property use regulations. AirBnB isn't going to up-end that overnight (if ever).

The quality of life of travelers and hosts seems to line up quite nicely with startup revenue.

But will it last as local jurisdictions add short-term rental restrictions? That's the question. Those governments are accountable to their local voters, not AirBnB, and definitely not the travelers who use it.

Too bad. They're probably chasing local optima that are quite different from the global maximum.

It's a debate over the definition of "owning property", which is something that changes frequently over the years. We're always trying to find some sensible middle ground.

Great comapanies can cover running costs. These are just placeholder companies on life support systems.

I'd be surprised if they're not covering running costs. They've got a ton of revenue.

I'm of the view that property rights are an important component of civil rights. I think the constitution is on my side given the fourth amendment.

It's interesting that on HN I see near universal support for the freedom to smoke pot in one's home, or to live with a same-sex partner, or replace a lawn with a rock garden, or to have our communications remain private.

But when it comes to letting someone crash on your couch in exchange for a few bucks, suddenly there are calls for a full-scale invasion of privacy and limitation of what one can do in their own home, in order to protect one's neighbors from... what exactly?

Obviously property rights have reasonable limitations, but is Airbnb really such a case? If you have a neighbor that is hosting a bad guest, then surely the bad behavior is the problem (and probably already illegal).

> freedom to smoke pot in one's home, or to live with a same-sex partner, or replace a lawn with a rock garden, or to have our communications remain private.

Those affect you.

> when it comes to letting someone crash on your couch in exchange for a few bucks

That scenario also only affects you, when you add the term 'occasionally'.

But if you live in a residential area and suddenly on four sides you find yourself with low-budget hotels with people coming and going at all hours and partying until 3 am because the owner of the apartment is absent when the guests are there then that is not a nice thing per-se and this is where your 'couch' starts to leak in to the lives of others around you.

So yes, AirBNB really can be such a case.

Then enforce noise regulations and other common property laws. If a long term tenant college party house moves in beside you, then you have the exact same problems. But you cannot blame AirBnB or similar in this case.

Long term college tenants as a rule are extremely well behaved, mostly because they value quiet as much as the next person (or even more) on account of their studies. They may have a few more parties than any other household but as a rule they don't generate too much of a problem because they are in there for the longer term and so have to be on good terms with the rest of the neighborhood.

And I would not blame AirBNB in that case because they have absolutely nothing to do with that.

People "coming and going" at all hours? How is that a problem? People are allowed to go into and out of their houses at any hour. Are you going to get all pissy if your neighbor works odd hours and gets home at 3am every night? If you're talking about a residential area with single family homes, how likely is it you're actually going to hear or notice someone entering or leaving your neighbor's house in the middle of the night?

"Partying until 3am" is possibly a problem. That's what noise ordinances are for.

> People are allowed to go into and out of their houses at any hour.

They're allowed to, sure. But in practice the expectation is that these are the exceptions, not the rule and apartments are typically constructed with that expectation in mind.

> Are you going to get all pissy if your neighbor works odd hours and gets home at 3am every night?

No, where did you get that impression? My neighbor, who works odd hours and gets home at 3am every night is a considerate person and has a long term relationship with me, his neighbor. And that's why he tries not to slam the door and he doesn't invite his 4 drunk friends over to his digs for 24 hours.

> If you're talking about a residential area with single family homes, how likely is it you're actually going to hear or notice someone entering or leaving your neighbor's house in the middle of the night?

I'm not talking about 'single family homes', I'm talking about apartments in just about every major city where AirBNB and such are getting people very upset.

> "Partying until 3am" is possibly a problem. That's what noise ordinances are for.

Yes, except that if your 'neighbors' change every 24 hours they don't give a damn about their reputation they will just do it until the police shows up and then do it somewhere else the next day.

It's no doubt the exception for AirBnB guests as well. Most people, even when they're staying out of town, don't throw wild parties in the middle of the night.

> Yes, except that if your 'neighbors' change every 24 hours they don't give a damn about their reputation they will just do it until the police shows up and then do it somewhere else the next day.

Really? Are we positing that there are roving bands of assholes who travel from one AirBnB to the next, throwing wild parties every night? Is there something to back that up? If such people exist, I doubt they'd find a lack of AirBnB sufficient motivation to be a respectful neighbor.

Living around other human beings means that sometimes someone does something that annoys you. Yeah, it sucks if there's a party and you have to call the police one night. It happens. That's part of the cost of living in a society. There's a lot of benefits too.

The city of Amsterdam has created a 'meldpunt' for issues with short term stay residents (such as AirBNB guests), they probably did this because they have an excess of funds and need to spend that money somehow.

I'm kind of surprised that you think that there is no impact from having an AirBNB hostel in your apartment, you probably have no idea what a typical Amsterdam-centrum house look like but you should probably believe me that coming-and-going is something that you'd most definitely notice and a party in one of those old houses might as well happen in your house.

Hotel guests on average do not behave like residents, they're on a holiday after all and are out to have some fun. In Amsterdam that usually translates into going out, doing drugs and visiting the red light district. Elderly ladies and tourgroups tend to stay in hotels.

Don't get me wrong, I'm fine with people renting out their single-family home in whatever way they see fit but when your next door neighbor is a paper wall away you can't just set up a hotel in the same building without taking some pretty good measures that there won't be any negative impact for the other residents.

I'm fine with that being regulated by the property manager or the landlord prohibiting sub-letting (as most leases do). Amsterdam is a unique situation since it attracts people who are specifically there to do things that are illegal in the places they come from. That's not the majority of AirBnB usage. I don't think we need city-wide regulations limiting what people can do with their own property.

That's not how it works. Apartments are owned by individuals who are jointly members of an owners association. So there is no 'property manager' and there are usually no 'landlords'.

In rental places this is not a problem but it is a problem for people that own apartments in the old city.

If the owners association is anything like a condo board or a homeowners association in the US, they should have more than enough authority to enact whatever rules they want in their building. If they don't, maybe they can amend their bylaws so that they do.

I do think that most bad behavior is already covered by existing laws. Yes, the guests might not care, but the owner ultimately has to own the place and answer to the local authorities and the owners association or whatnot. If there are constant complaints about your property, you're going to be held accountable for it, whether you live there or not.

in order to protect one's neighbors from... what exactly?

Their lives being disrupted. There are enough horror stories out there that you'd have to try very hard to ignore them - short term renters simply do not care about community and shared spaces in the same way that long term residents do.

You living with a same-sex partner has absolutely no effect on my life. You renting out your apartment to tourists who are loud, disruptive and trash common property does. And yes, that behaviour is already illegal but it's incredibly difficult to secure any kind of prosecution for it.

I'm not suggesting that we should ban AirBnb here, but I think "it's all just property rights" is also a dramatic oversimplification in the opposite direction.

Don't be motivated by horror stories.

Airbnb has hosted over 40 million people. More people than the population of California.

I'm sure there are some bad experiences on Airbnb (and in California, where there are multiple murders every day) but are they statistically significant?

The horror stories are actually what is important in the face of 40 million people staying in various places. Big numbers are big numbers and nothing especially interesting in-and-of-themselves.

That you would so callously discount the discomfort people feel in their own homes due to the profit motive of their neighbors is what should be emphasized as the negative aspect of what AirBnB enables. You care about statistical significance and not the human aspect and I simply can't respect that sort of inhuman profit-loss calculation.

> But when it comes to letting someone crash on your couch in exchange for a few bucks, suddenly there are calls for a full-scale invasion of privacy and limitation of what one can do in their own home, in order to protect one's neighbors from... what exactly?

Are we talking about someone crashing on your couch? Or we talking about someone who converts their property into a perpetual short-term rental?

> in order to protect one's neighbors from... what exactly?

In my case, the late-night noise, rubbish and vomit of the people staying in the apartment above mine.

The vomit was disgusting, it splashed down all the balconies from the 5th floor to the ground. But at least the culprit was immediately obvious. A cleaning bill was sent to the owner of that apartment, and the different-every-weekend people having a party on the balcony above mine stopped.

And it's hardly a few bucks. More like €80-100/night.

> limitation of what one can do in their own home

It's typically forbidden to use your home as a restaurant, crèche, laundry etc without some form of permission. Why should turning it into a hotel be different?

Your neighbors can also have rowdy friends over. What difference does it make whether the people there are paying or not?

If there's behavior with negative externalities, regulate the behavior. Not the particular circumstances.

"regulate the behavior"

what if the behavior is already regulated, but is difficult to enforce?

Then step up enforcement. That's the problem which should be addressed, and is just as relevant if a bunch of stereotypically rowdy college kids move in next door.

what if said company spends millions applying political pressure to oppose that?

If the neighbour lives there, they have to handle the fallout, whether that's angry people bashing on their door past midnight, the police, or just spiteful glances in the morning.

With AirBnB-as-a-hotel, the neighbour hardly ever has to meet the people they're annoying.

This surely makes a difference in the behaviour of guests.

> restaurant

Supper clubs are a thing. People invite others over and cook for them. Some are so popular that money probably changes hands. Do we need to regulate that?

> crèche

I had to look this up, but it sounds like a daycare. People do childcare/babysitting in their homes. That's not unusual. Children are usually cared for in a home.

> laundry

If you're talking about installing a full laundromat in your house, yeah you might run into problems. If you want to charge someone a couple bucks to use your washer and dryer, I don't see how that's going to run into any problems. There are no laws restricting how frequently you're allowed to do laundry within your own home that I know of (other than maybe noise complaints that might happen if you're doing laundry in the middle of the night in some apartment complexes).

I think the right not to be interfered with is important too. This includes property rights, but I wouldn't necessarily put it at the very top of the list morally. They're pretty important economically.

In any case, I think it's interesting you said "freedom to smoke pot in one's home." Many aspects of liberalism/libertarianism are fairly incompatible with fundamentalism, though people try. Once you accept that a little taxation is necessary to fund police or something, you give up on a fundamentalist purity. Once you put in a caveat that you're freedoms end where they diminish another's you end up with grey areas.

The grey area here is that what you do with your property affects your neighbours. If you have a rock garden or an unkempt mess (or a wrong coloured door if you're in the Netherlands) the neighbourhood is different. Everything we do affects other people and we need some lines. AirBnB built an entire society in the grey area. The whiter sections are renting a couch to travellers. A darker shad might be a setup that rents out 4 apartments in a 10 unit building with appeal to a noisier or more disruptive market segment.

> in order to protect one's neighbors from... what exactly?

Drunken guests regularly wake my 62 year old mother up by pounding on the wrong door at 2AM. She's been complaining for many months to Airbnb and they do not care.

An Airbnb guest got into a fight with a tenant of my previous apartment building. Only possible because Airbnb let drunken frat boys party in a building full of families.

The Airbnb host doesn't care, the Airbnb guest doesn't care, and Airbnb itself doesn't care. The people that care have no ability to fix the problem.

I don't even know my neighbors. I certainly don't want to have to ask them before renting out my spare room.

I don't ask my neighbors before having family stay for a few days. Why should it be any different for Airbnb?

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