Airbnb Files to Raise $850M at $30B Valuation | Hacker News Reader

Airbnb Files to Raise $850M at $30B Valuation

bloomberg.com

169 pointstekacs171 comments

Not the first time this has been remarked here, but wow at these companies just continuing to raise more and more money over and over. When does it stop?

I mean, I don't fault Tesla because I know exactly what they're doing: enormous capital expenditures like factories and stores.

What does a website platform need $850 million more for?

Lobbying, I would assume. Airbnb has met a lot of legal opposition lately. They are dealing with regulations in jurisdictions all over the world. I guess that takes a lot of cash.

In many countries lobbing is illegal, so in those places they will need to send "gifts" instead, or well just bribes

Not if they want to keep doing business in the US or Europe they won't.

Delaney is referring in the US to the Foreign Corrupt Practices Act. You can read more about it here: https://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf

Suffice it to say that the realities of doing business internationally are complicated. One complication is that companies wanting to do business worldwide will, with probability 1, be asked to pay bribes. The US considers bribing officials to be anathema and will essentially exercise universal jurisdiction with respect to the act if committed by a US person or entity.

There exist laws in the US which are utterly non-enforced, and there exist laws in the US which are enforced vigorously, with extreme prejudice. The Act is, like most, somewhere in the middle.

> In many countries lobbing is illegal

Can you name one of them? I can’t find any, and sending gifts or bribes is lobbying.

I stand corrected.

One problem with that approach is that lobbying is not a one-time investment the way factories are. Every few years a new wave of politicians comes out, frequently building their platform around criticism of their predecessors and their corrupt, cozy deals with megacorps.

Is AirBnB just a vehicle for moving cash from venture industry to lobbying industry the way music startups are vehicles for moving cash from VCs to labels?

I think, from an accounting perspective, you could theoretically capitalize the expense over the term of office in the same way you capitalize the factory costs over the life of the machinery and facility.

I cannot say I have ever met an accountant would would dare try it, but suffice it to say the field of accounting has a more nuanced view of "one time expenditures" than you might be imagining.

Accounting standards have pretty strict requirements when it comes to intangible assets. There is a whole list of criteria that development costs need to meet to be capitalized, and that is for actual products. The problem with lobbying as an asset would be valuation: its impossible to actually measure the fair value of it. As well, it probably would not meet the definition of an asset at all since economic benefits are not probable.

I think that if the bribe has a contract attached, written or verbal, (which seems to be the current supreme court test for corruption here in America), then the valuation would be the fair market value, or, conversely, be a pre-payment for services not yet delivered so the income wouldn't be realized on the politician's end until time passes in their term of office. From the briber's perspective, they'd have the asset of debt on unrealized income for services not yet rendered, and like all debt, that has a simple value (and if the politician becomes honest, then the debt is written off like all other debts you'll be unlikely to collect).

Google in total spends $16M in the US for lobbyists in the US and they want self driving car litigation. This seems like it would be used for more than lobbying .

No, they'd like self driving car litigation.

Airbnb needs liberal rent-out-your-home litigation

I'd say Google at least wants self driving car legislation, and could later go as far as saying they might need it too. (...where "might need" > want >>> like).

The company has very closely aligned its image with this technology, and indeed I'd say it currently is one of those moonshots that they are betting heavily on. Which of course factors into markets gauging their P/E where it currently sits.

rent-out-your-apartment* litigation. Afaik the only case where people have issues with AirBNB is in buildings with shared entrances/hallways.

Absolutely not the case.

Here in Australia city and state hospitality organisations are very vocal in opposition to airbnb. The usual argument is why should they be paying to meet licensing/safety requirements when airbnb hosts can rent out their home without regulation. I'd guess 90%+ of these premises are standalone homes.

In my city the local council just announced plans to limit a property to 42 nights of airbnb per year, or face significant fines. Not sure it'll stick.

Thanks, didn't know that. Speaking from my own experience living in cities like Philly and NYC.

There are usually zoning issues that come into play when you run a business from a residential property.

One could argue that swaying property owners in every metropolitan area of the world, and threatening the hotel industry is a greater obstacle than legalizing self-driving cars, which is almost unanimously agreed to be the future and in a market with many other players (every automobile company). There are few major competitors to AirBnB other than long-vested players who own expensive land and historic properties. Much of it will be used under the banner of local outreach.

Self driving car companies are messing with car insurance companies. Insurance lobbyists own pretty much everyone in congress.

Insurance companies love self driving cars. Humans are the expensive part of car insurance.

Perhaps you meant legislation, not litigation.

Lobbying really isn't that expensive. This isn't the answer.

A US Presidential election costs costs ~ 4.5 billion dollars, how would AirBnb possibly spend close to a billion on lobbying?

Well, depending on when and if the bubble bursts, we'll figure out who was swimming naked figuratively....

IMHO I agree with you, but if the market will bear it can you blame them? Cheap capital is always appreciated.

You are underestimating the value generated by purely bypassing government regulations. Anyone can create an Uber like app. Stopping government is an entirely different ball game.

If you want to know which country or the city is worst and corrupt see who have banned Uber or surge pricing. Same goes with AirBnB.

Knowing who is corrupt needs to be more narrowly defined. You will know who is worse when it comes to rent seeking, but not necessarily other types of corruption.

I know what you mean. Could you imagine if 850 companies out there each got a cool million bucks, instead? What a world we live in.

A million bucks doesn't get you very far. I've worked at a start-up that builds robots for 3 years now and I underappreciated just how much money it takes to run a company.

That cool million would pay for what.. maybe 5 or 6 engineers for a year when you account for the cost of salary, a building to work at, resources to work with, benefits, etc.

Not that $850m isn't kind of wild for a pure software company. But a million isn't a lot of cash.

A million may get you 5-6 interns for the year if you include cost of rent and upkeep, along with all other business related costs. Doesn't get you far at all.

If you're running a company that requires 5-6 interns, at what point do you decide to, I don't know, make money?

The fallacy that you have to build to enormous proportions before you make a penny in profit seems only to exist in SV. That's why people question it. The vast majority of business elsewhere try to make money ASAP. Some of them even grow quite large.

Yup. The company I'm was was self sufficient after its first few years. Grew slowly and organically. Funding has only been to speed up that growth once our products were proven.

The idea is that some business models are more capital intensive than others to implement (like establishing a two-sided market place or building something tangible like electric cars).

A million is the annual turnover of a tiny bakery with two or three outlets across town. It's not much at all.

3.2 billion total. Where the hell is the money going?

Could it have something to do with the negative interest rates popping up across the world?

Great point. People (and organizations) are seeking return/yield and low/negative interest rates push them to riskier and riskier options.

Of course, that's kind of the point -- to get the money out there flowing through the economy's veins.

Sounds like this is the problem: you don't know exactly what they are doing. That doesn't mean it's not justified, and of course it doesn't mean it is :)

I mean, there's really no possible way Airbnb could possibly need that much money.

That's more than half what Tesla recently raised, with the goal of building 500,000 cars annually within 24 months.

How could Airbnb possibly justify needing 56% of the same amount?

Managing an infrastructure of peer to peer rental for >500,000 units worldwide seems like a reasonably hard task.

You're comparing apples to oranges here.

Arguably the value of the property Airbnb is a defacto manager for is higher than 500,000 cars, but they also need to expand.

Trust me, I'm totally on board with the unicorn hate here, this seems ludicrous, but I also don't know what is going on at Airbnb, so I try to think about why this might be a good investment, rather than why it might appear ludicrous :)

Unless you have considerable expertise in Airbnb's core and peripheral markets, I don't think it's fair for you to say what is and is not possible for a company to need (putting aside the fact that "need" is used in the normative sense here).

I'm going to bet they will be opening local offices / retail points around the world. Help less tech savvy folks list on Airbnb as well as serve as a "check in desk" to pickup keys

Cheaper, a simple locker system (nicely AirBnb theme). When renting, you get a code via text, enter it and a small locker opens up with the key. When done, you can deposit the keys in there.

You could even put up a computer next to it where you can search for immediately free rooms, pay and get the key right away, or just one friendly local guide standing around ready to answer tourist question about the city.

Put it in a convenient central location that's safe (airport, central train station).

Yes, I really wish there were fewer top comments on Hacker News rehashing "I can't believe a software company raised so much money!"

It's not that these valuations are above criticism, it's just there's rarely any real dialectic reasoning involved. I rarely see a comment from someone with a deep, nuanced understanding of the industry and market criticizing the funding round. It's just the usual incredulity that these numbers are big, which is not a sound basis for debate.

I'd like to see honest criticism of these funding rounds (or honest defense) from people who have a great deal of knowledge on the subject.

Also, very few people on HN have seen the decks, metrics, or long term plans that the investors saw.

Obviously nobody can see the future, so it's totally reasonable to assume that said decks, metrics, and long term plans are total bullocks, but hey, at least they exist, and someone saw them.

Those of us that were in the tech business between 1998-2001 are well aware it's precisely the people claiming "deep nuanced understanding of the industry" that drove the entire community off a cliff with mindless fundraising and valuations wholly unsupportable by common sense, or any other kind of sense.

Clearly the market is different now, but basic economic laws of nature don't get repealed. The reason a valuation question is the top comment on all these stories is because the valuations appear, objectively, to have no basis in a realistic assessment of the future discounted cash flows of the business in question.

Your first paragraph is not really responding to what I actually said.

Let me repeat for you: these valuations are not above criticism. I just want to see better reasoning involved than literally balking at big numbers. It comes across as the same hysteria that drives the valuations up in the first place, just in the opposite direction.

It's really not a lot to ask to simply elevate the caliber of discussion. For example, I could respond to your second paragraph by stating that it is very difficult to claim what an objectively good valuation is without a understanding of what Airbnb's future plans are. Expedia's market cap is on the order of 17B. We have incomplete insight into Airbnb's plans for future markets.

See? That isn't so difficult. I'm not blindly attacking or defending the valuation, I'm reasoning about it instead of saying, "These numbers are big so I can't see how they possibly need them!"

Reasoning from whom? The interested parties won't tell the truth. In the cited period 1998-2001 Greenspan warned of "irrational exuberance", though he did not exactly do everything he could to stop the bubble either.

In reality, opinions from anonymous engineers who know what is being sold may be the best you can get.

Why is this criticism of these funding rounds not honest?

It's a phenomenon thats seems to defy obvious business logic much like credit default swaps without owning the underlying asset, no doc mortgages, underwriting student loans for degrees fields that can't possibly pay them back ad infinitum.

The phenomenon of companies remaining private and unprofitable for close to a decade and continuing to raise astronomical sums of money is not exactly a field filled with experts. Its unchartered territory. There are no people with deep knowledge of this bewildering business strategy.

It's not rehashing when its a new news item is it?

Thank you. I, too, am tired of comments along the lines of "I don't understand, so it must be a scam or a ponzi scheme."

>I'd like to see honest criticism of these funding rounds (or honest defense) from people who have a great deal of knowledge on the subject

This sounds like a variation of "You're dumb, they're smart. Trust them."

Fortunately, this isn't most people's first rodeo, and we've seen where blind trust of the "experts" gets us.

I'm not looking for blind trust of anyone. I'm looking for elevated discussion and debate.

As I said, the valuations are not above criticism.

A fairly simple DCF[1] based on public numbers. First the basic numbers.

From public data[2] in 2015 AirBnB did at least $360M in revenue, expecting to hit $900M by the end of that year. They never disclosed if they did hit that number, but lets assume they did.

So, 2015 Revenue is $900M.We'll assume a 8% yearly growth rate over the next 10 years. With a terminal growth rate of 4% after that.

I think we can accept 6% as a discount rate - The rate we'd otherwise get just shoving our money in a stock market index.

and based on those numbers, we get a valuation of $19774.14 Billion. to get a $30B valuation in this analysis they'd have to have 14% YoY growth for 10 years. Which I think is unrealistic.

[1] http://www.gurufocus.com/fair_value_dcf.php [2] https://www.quora.com/How-much-revenue-is-Airbnb-making

Thank you. This is the sort of reasoning I was looking for.

Now, I'd counter your argument here by stating that it appears Airbnb had over 100% growth in 2015, and Expedia and HomeAway had 24% and 20% growth respectively.[1]

Given that, is it unrealistic to assume the market can support 14% YoY growth (or higher) for the next ten years?

[1]: https://www.cbinsights.com/blog/airbnb-hospitality-industry-...

That is a question worth answering. But now we have reasonable ground to make statements one way or the other.

I personally think yes, they'll saturate their market fairly quickly from here on out. Also, I expect they'll start attracting competitors soon.

Yes, the comment you're answering to is asking what they are doing with it.

Priceline.com -- $70 billion market cap, $9.5 billion sales, $2.6 billion net income, $3.4 billion in cash

Expedia -- $17 billion market cap, $7.7 billion sales, $2.3 billion cash

That's just two competitors that Airbnb is squaring off against, and you're wondering why they'd want more capital?

Priceline.com just keeps expanding, getting bigger and bigger, making more and more money, accumulating more and more cash, when will it stop? What exactly does a web site like Priceline.com need $3.4 billion in cash and $2.6 billion in net income for? Those questions make as much sense as wondering why Airbnb would want to raise $850 million.

How about if Airbnb wants to acquire the next Homeaway for $3.9 billion in cash + equity? Or they want to buy the next Kayak for $1.8 billion in cash? Or if they want to buy Zillow? Why not? Those are perfectly valid business expansion opportunities and they're expensive.

> What exactly does a web site like Priceline.com need $3.4 billion in cash and $2.6 billion in net income for?

It doesn't. Priceline.com is a very small part of PCLN. It's mostly Booking.com.

>What exactly does a web site like Priceline.com need $3.4 billion in cash and $2.6 billion in net income for?

They're publicly owned companies that make a profit for shareholders.

With dilution being .85/30, does it matter? If you could raise $850M with ~3% dilution, who would turn it down?

Also, you have to figure some of that money is going to early employees and investors who are looking to take a little off the table.

> What does a website platform need $850 million more for?

Like others have commented, at least some of this money will be used to pay off initial investors with a nice profit. It's a kind of pyramid scheme, really, that ends with an IPO.

> at least some of this money will be used to pay off initial investors with a nice profit.

To clarify, do you mean some of the money will be used to buy back shares from early investors giving them a nice profit?

The money being invested by new investors is being exchanged for shares of the company. Rather than creating new shares, at least some of these shares are likely coming from existing investors who bought them at a lower price at an earlier time.

Why would you assume that? Typically the company would just issue a new series of preferred stock.

I'm not sure thats entirely true typically a late round of funding will be some combination of folks taking money off the table and new stock.

There's nothing very "typical" about a 850M raise at 30B. But Groupon infamously raised "Like, A Billion Dollars" of which only about 15% went into the company.

> at least some of this money will be used to pay off initial investors

This is almost certainly NOT happening.

No sane company sells prefs with 1x liquidation preferences to pay back investors at, relatively speaking, 0.05x. When companies want to help early investors out they facilitate a secondary transaction. These $850MM are, in all likelihood, going straight to the balance sheet.

Could you explain what 1x liquidation preferences are and why would be on .05x if they were paying out early investors?

If this round had 1x preference then if AirBNB today sold for $850M then all the money goes to the investors.

yes, but this $30B valuation certainly helps facilitate a lot of secondary transactions.

> These $850MM are, in all likelihood, going straight to the balance sheet.

That's not what Groupon did.

" Ponzi scheme (also a Ponzi game or aPonzi)[1] is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources." --Wikipedia

"The greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants.[1] A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price.[2][3][4] In other words, one may pay a price that seems "foolishly" high because one may rationally have the expectation that the item can be resold to a "greater fool" later."

:-)

That implies that their stock price will plummet after they IPO. You'll be able to make a fortune shorting their stock.

It may drop briefly initially, but as we saw with Linked-in, Facebook, or Google, zillow, if the fundamentals are strong, prices will keep rising. No free lunch shorting these.

My point was that it would be if Airbnb's fundraising were truly a pyramid scheme, which it obviously is not.

In my view, valuations and fundraise are based on what the company is going to do and growth trajectory it is on. It'd be a mistake to assume (as I see a lot of commentators here wondering why a software company needs $850M) that Airbnb will forever be a booking platform for shared rooms or continue to do what it does today.

Of course, there is no disclosure yet about what they wish to do with this capital and it may become clearer in next few months. The reach Airbnb has today could get it into growth areas such as Airline tickets, B2B, advertising or possible acquisitions. Also, being a full stack company, cost of operations, support, lobbying etc. would also be a factor for more capital.

Classic reasons are 1: They are spending more than they are earning (to keep growing) 2: They want to spend more than they are earning (to grow faster) 3: Existing investors want to sell some or all of their shares 4: They don't need the money but the deal is too good to turn down 5: The investor can make a real difference to the company 6: They want to acquire something

I'm guessing 1 with a bit of 2, 3 and, absolutely, 4.

If the business is fundamentally unprofitable then they will keep needing to raise money to survive. If the market prices for companies like this drop then they will struggle to raise again and the business will need to be restructured (or growth slowed) to be cash flow positive. I'm guessing they are still in land grab phase and spending as fast as they can to extend globally and within existing markets. $850 million is a lot of money, but it's easy to spend when you have the world to spend it on, and the battle is not won, not at all.

>absolutely, 4.

Maybe a step towards frictionless travel from the moment a person thinks about going to place X to the moment the person is at place X.

Frictions exist in transportation (maybe buying an airline), booking (many countries don't have electronic payment and catering to the underbanked might turn out to be profitable), or downright hosting (buying a hotel chain).

The last option might seem counterintuitive as Airbnb is competing with hotel chains but, technically, hotel chains are businesses still generating revenues which are not going to Airbnb. These revenues are thus up for grabs by Airbnb increasing its market share either by winning it as Airbnb or buying it and making profits owning a hotel chain and slowly chipping at it.

In other words if the goal of Airbnb is to kill hotels, it might as well make a profit off of them -by owning them- while it does.

Anti "synergy" stuff, but I think it can also be looked at from another perspective: maybe Airbnb doesn't have the cachet Marriott/Starwood/Hilton/Accor/Ibis hotels have in some countries. It can make money off of these hotels as Marriott/x/y/z in these countries, and as Airbnb in countries where the Airbnb brand is widely accepted.

I'm just guessing; I don't know anything about how any of this stuff works.

When they take over entire industries world-wide.

Their business model is dodging zoning laws, tenancy agreements, income tax... They need to do a lot of bribing sorry I mean lobbying.

Settling previous discrimination issues along which modifications for the platform going forward are going to be very expensive.

What does a website platform need $850 million more for?

1. I'm sure their staff costs are massive. They have offices around the world, yet the one they hire most for is in SF, one of the most expensive places in the world.

2. I'm also sure there's a fair amount of pet projects going on which are not essential or even important to the business. If you look at their departments page [1], you see they have a whole lot of departments, some of questionable impact on the business. I also heard they also have their own machine learning group that they are looking to grow. This and a whole lot of other things that you'd expect in cash-printing tech giants like Google or Apple but not startups like Airbnb.

3. They even recently launched their own in-house design studio [2]

So yea, $850m is a lot of money but given their expenses I'm sure it'll be gone in no time.

And since you made the comparison with Tesla: Look at Twitter. Where is their money going? They compare to AirBnb as AirBnb compares to Tesla. Their product is a glorified website that displays 140 character messages. They have raised about $750m in VC, 2.1b in their IPO and their quarterly revenue is about 600m. As Peter Thiel said, there must be "a lot of pot smoking going on"...

[1] https://www.airbnb.com/careers/departments [2] http://www.dezeen.com/2016/08/05/airbnb-launches-internal-de...

1) Lobbying. Uber has it easier because politicians are more apt to use their service since it's convenient, but a politician is frequently charging his or her stay to the taxpayer so who cares what a nice hotel costs. They may not be as strong an advocate for Airbnb so they'll need to be bought.

2) Buying up competition. Look at what HomeAway did before their IPO.

I'm late to the party, but here's what bothers me about Airbnb: It's being treated like a technology company and not what it is, a retail company. Which is bad because wall street hates retail, but not as much as venture capital hates retail. And when people are delusion thats when mistakes are made.

Look at this way, Airbnb is a broker for rental inventory that they never own or control. Since they don't actually control the inventory, the owner of the inventory is free to take it anywhere they want. Airbnb has no secret sauce.

This leaves Airbnb's business totally unprotected and vulnerable to an unlimited number of competitors coming up. Eventually Airbnb will make a mistake, maybe they'll push hosts too far, maybe some catastrophic thing will happen to a guest, the point is something will happen that will shift favor to a competitor. Maybe not tomorrow or next year, but someday.

But it gets worse, Airbnb is going to spend a lot of their vc funds fighting lawsuits, lobbying, and paving the way for their competitors. If I were to compete with Airbnb, I'd spend my time building a better platform and marketing strategy. Then wait for Airbnb to solve short-term rental legislation, then slip into those markets with a far lower cost to entry than Airbnb paid.

But what about technology you say? They've built a great platform that will take time for a competitor to replicate you say. Well if your business defense is solely based on having a complicated website, you're going to have a bad time.

They've hit on a great idea: home sharing. But they don't own the idea, they don't own the homes and those homes are free to list anywhere they want.

They do own the accumulated trust

@spaceflunky they said that about Facebook as well. Tech matters a lot less than network effects.

It's not similar to Facebook at all, Craigslist would be a more apt comparison.

That is a better analogy, seeing as it's a direct Craigslist competitor (Craigslist has offered a similar short term rental listing for a very long time)

Fair point. I still feel the same way, but I understand about FB is that friends and family are hard to leave behind and its hard to corral people into a new platform, when most people don't see social media as that important to begin with. It's like people are stuck in this hole of apathy. It's also a free service, so most people don't give shit. So they don't leave then the person who does care doesn't leave because all their apathetic friends haven't left and so on...

As for Airbnb, because money is involved and its a retail transaction the game changes. It's like in Freakonomics how once you introduce money into a relationship, a whole new set of dynamics emerge.

Think about your affinity for retailers. Do you really care if your Moleskin notebook was bought from Amazon, Target, or B&N? You probably just went with the cheapest.

Very insightful thanks for sharing. I would say that if AirBnb is still the market leader in 10-20 years it's because we underestimated the power of a trusted brand.

So you just pointed out another paradox: Products have trusted brands, retailers don't. People know and trust the products they use, not who sold it to them. I have no idea where I bought most of the stuff in my home after a few weeks if I didn't buy it directly from the producer.

People LOVED Sears for a century and then when someone offered the same products some where else for cheaper in a snazzier space, Sears went down the tubes.

People thought Target was a great experience, but then free 2-day shipping and a lower price from the comfort of your home for the same products came along and now Target is struggling.

Nobody pays a more for a ticket on Priceline.com if they know they can get it cheaper on Expedia.com.

If Airbnb, owned the homes and thereby owned the experience, they'd be able to build brand loyalty. But they don't own any of those things.

You're talking about a general business cycle. Even if they owned the products say like (No Fear Clothing), the company is vulnerable to changing tastes, production problems and general operator disinterest.

But look at Urban Outfitters, they were the COOLEST thing 10 years ago. Today they are struggling. In another 10 they may not exist.

Being a retailer does not make you impervious, in fact it makes you more vulnerable IMO.

How many products can you name that are more than >50 years old? How many retailers can you name that are >50 years old?

There are quite a few 50+ year old retailers. Quite a few 100+ years old.

As for Urban Outfitters, their net sales are more than triple what they were ten years ago. They don't see 30% year-on-year growth anymore, but they haven't seen a decline.

I should quantify my question more. How many $30B+ companies are older than 50years old? Only about 3 [0], but how many retail companies have come and gone in their wake? Why is Airbnb the retail company that survives against all odds?

URBN is down 40% from their high stock price and analyst estimates are bad. That's the thing about retail your sales could be good, but your long term outlook bad. See my original comment about wall street hating retail.

Look at Target, they're killing it right now, but wall street still shits on their stock price.

[0]https://nrf.com/2015/top100-table

Airbnb doesn't have to own -- they could manage. For example, not every Hyatt Hotel is owned by Hyatt, but they manage them so that customers trust the brand.

Right but Airbnb doesn't exclusively manage. Hyatt exclusively manages, the hotel can't change to a holiday inn or a Hilton on a whim.

You must also be bearish on; uber, Facebook, Yelp, Ebay, etc...

Network effect + brand recognition is worth a TON. It's why you're probably wearing Nikes right now and not generics.

Super bearish on Uber^1. I mean when you get into a Lyft vs an Uber, do you REALLY notice a difference?

Its the same thing with Airbnb. Uber is going to pave the way for someone else to come along.

Look at Pets.com, people freaked out because they were first to sell pet stuff online. Investors said, look they built an ecommerce website (really hard to do back them), they are first so they have brand affinity, and they'll build trust. Where is Pets.com now?

As for Nike, they're on an upswing now, but they are constantly under siege. But you're missing my point, which is that products (like Nike) build brand affinity, not retailers. Do you buy your Nikes from the same place every time?

^1 unless uber can use their capital to develop a self driving car before anyone else. This would give them a huge advantage. Competitors would struggle to overcome this and would make über virtually invincible.

> Do you buy your Nikes from the same place every time?

This is precisely the point most are overlooking when they disagree with your point.

Your analogy is not great, IMO. In this case, AirBnb is the shoe, the web browser and device used to access it is the shoe store.

Airbnb is not the shoe. The apt is the shoe and airbnb is Footlocker. Have you looked at footlockers stock lately?

I just wanted to say I really like your take on the situation. I've been skeptical about these companies for a while but was never able to articulate why. Well framed argument!

>products (like Nike) build brand affinity, not retailers.

I don't shop at Amazon, ebay, target or walmart because of certain brand affinity for their products. I shop at them because of the brand affinity with the store.

Being bearish on Ebay would be fairly smart, they keep raising their fees making platform not competitive they have crappy ad targeting the site is slow and often has issues.

Pretty much all the sharing economy is retailer. AirBnB, Uber, Lyft, Postmates, all those "do your laundry by ordering a dude to pick it up from your home with an app" startups etc. None of it is tech anymore and thus you are right. They are by no means bad or insignificant businesses. Quite the opposite! But tech they are not. Twenty years ago AirBnB would have travel agencies and Uber a Black-Cab Call-In number. Now it's a website or app. The valuations are way off.

I can understand the sentiment of the parent post but I disagree.

The recent UberXPostgres articles are an insight into the engineering challenges that go into solving these business problems at scale.

The projects probably started as some hacky glue programmed Frankenstein but their current iterations solve considerably difficult and expensive problems that I don't think is trivial for new entrants to come in and instantly replicate.

So engineering and capital requirements aside, there's the matter of network effects and customer adoption to tackle. It'd be a very hard sell to convince users to stop using AirBnB or Uber - the inventory may be volatile, but it's deep and expansive.

Any country I go to, I will first think AirBnB or Uber as I will be confident without even checking that they'll have coverage. Much like how I don't even bother looking anywhere else for products other than Amazon - they'll probably have what I'm looking for, it'll either be the cheapest or close to the cheapest product and the delivery experience will be dependable. We at HN consider ourselves being more acquired than most but are probably still prone to appreciating convenience over optimisation now and then.

Current consumer trends suggest though that our behaviour is in the minority and so "first-mover"* advantage is king.

*(AirBnB and Uber almost certainly were not the first in their respective spaces, just like the iPad wasn't the first ever tablet)

Uber definitely has built some technology that allows them to scale out a real-time ride-sharing app with payment, locations, optimizations, etc, which is a real technological feat.

However, I still question: 1.) how difficult that is to do (iirc its not like Lyft is far behind and there are others as well) and 2.) does uber have patents on these developments and 3.) how much of those UberXPostgres articles are just posturing to the investment community (i.e. Uber flexing it's muscles to show how it's spending that cash) vs. serious long-term competitive advantage?

You're missing my point about Airbnb, by pivoting to Uber, which I think is in a totally different boat than Airbnb given that Uber does have greater control over some of their inventory than Airbnb and total control over some of the Uber inventory which Airbnb does not. Unless Airbnb starts buying apts and renting them out themselves, which be a better play for them, albeit politically disastrous most likely.

As others pointed out, Airbnb has not published big engineering feats (ala UberXPostgres) nor does it need to, nor likely ever will. The point about Airbnb is that Airbnb is a retailer with total lack of control over inventory. Competitors will one day create a sleeker better platform because there's no defense for Airbnb.

I think a good analogy would be dating sites. It feels like every year there's a new app: Match.com->eHarmony->OkCupid->plentyoffish->jdate->tinder->bumble, the list goes on and on.

Where's the brand loyalty in dating sites? There is none because no one cares about the brand, they care about the inventory (i.e. booty) and so if a site has a better way of finding those dates (be it faster or more curated) or just better "inventory" then people are going to use those new sites. That's how I see Airbnb going. Eventually there are going to be different sites that do the same thing, but tailored to different needs. Airbnb will still be around, but it sure as hell won't be worth $30 billion dollars.

Also, home-sharing is about as fickle as dating. People date until they find a mate and then stop. Most people don't live their home for more than 3 years, especially in popular Airbnb markets like NYC, LA, or SF. Therefore there's a lot inventory turn over that Airbnb has to deal with, just like dating sites, which makes it easier for a competitor to come in and swoop up people who new to home-sharing.

Uber has considerably harder engineering challenges than Airbnb. Airbnb is a pretty Craigslist. Uber has to manage millions of trips in real time 24/7

Have to agree on this one. It's a prettier Craigslist with a payment transfer mechanism. In my experience as both a guest and a host, AirBnB does basically nothing after the reservation is booked.

One strategy to fight this is to offer rewards programs and/or credit cards with special perks. Retailers you've pointed out in other comments do this -- Amazon has a credit card[1]. Target has one that gives you 5% off purchases at Target. Also airlines and hotels do points/miles and credit. Without them, people would only choose the best price every time.

Does AirBnB have enough regulars to make those rewards programs worth it? Do travel-weekly business people use AirBnB? If not, it's like being given the buy-10-get-one-free sandwich card at the deli you go to once a year.

[1] - Edit: And prime!

I think their value over the long term is similar to tripadvisor/yelp - while anyone can come in a create a repository of home sharing they wouldn't have the reviews/reputation data as AirBnB has. Going into someone's home / letting someone in your home, just like hotel reviews or restaurant, reviews/ratings can matter in the decision making process.

The difference being that tripadvisor and Yelp own the reviews. They own the underlying core value. The value of Airbnb is the real estate which they do not own or control. Sure reviews help, but that's like saying only Amazon can sell something because they have reviews. Not to discount your point entirely, I still think there's value to reviews that validate hosts, but it's not he core value.

There is an entire blog dedicated to the topic of tech at Airbnb: http://nerds.airbnb.com/. Perhaps you will still feel the same after reading this?

Peter Thiel's Zero To One described four pillars that were necessary for a monopoly. It appears Airbnb has most if not all of these.

1. Network effects - this is usually more important than proprietary tech. They have this - global network effect. This is not a "retail company" any more than Amazon's 3rd party marketplace or Alibaba's is.

2. Tech - read blog and decide for yourself. It's easy to imagine at sub-scale also being able to build Facebook, Instagram, Snapchat, etc. Most of the challenges come at scale (and are protected by #1 above).

3. Brand - the commenters seem to agree they have this.

4. Economies of scale - they have this.

I agree with 1 and 3. 2 and especially 4 don't resonate. Would love to know how you describe 'economies of scale' at Airbnb

Why does everyone think that a competitor must be able to operate at the scale of Uber/Airbnb the day it's released? How many taxi commissions thought "oh no one can dethrone us, no one has 10,000 cars!"

Uber does not have meaningful network effects. Airbnb does.

A competitor would need to be more than marginally better to compete subscale, as Airbnb was vs craigslist or original vrbo.

Because I travel to paris one week and new york the other and seattle the other. If the listings aren't at all those places I discard the app and never use it again.

This is a pretty terrible analogy.

It's not a retailer; it's a marketplace. Marketplaces don't get commoditized. Is there another Ebay out there?

Retailers can purchase the inventory at will, then earn the demand. Marketplaces have to earn both sides.

Airbnb was not the first here; Homeaway has been away for a long time, owns all the web properties, and has far better SEO. Airbnb is kicking their ass.

Sure their dominance won't last forever, but no company's does.

Correct me if I am wrong, but the infusions of cash into startups of this scale are probably historically unprecedented. If this is true, then nobody really knows what the outcome of this is going to be for the companies that appear sound: AirBnB, Uber, as well as for the whole Silicon Valley startup ecosystem. It may well destroy it for good.

Late-stage investors have become proficient at extracting various ratchets and preferences (e.g., BOX). Even if the worse comes to worst, that $850 mil is probably recoverable at 1x liquidation preference.

In a low-rate environment we have today it seems like a reasonable allocation of cash compared to buying something like German bonds at negative rates.

Investors are not blindly giving these companies cash (insert tired Theranos joke here). They see far more information we do, and they do more due diligence than most investors do in publicly traded companies, including (and especially) during the first dot-com bubble. That ended rather catastrophically, and Silicon Valley was never in danger of being "destroyed for good."

Fundamentally, the underlying inspiration for these huge infusions is debt. On the microeconomic scale, it will take a long time for Airbnb to generate $3.5bn in profit, that has already been put into it. On the macro scale, tens of trillions of US debt make zero interest rates possible, which in turn creates a lot of fake money looking for returns on investment.

Fundamentally, the underlying inspiration is the growth of these companies. The fact that interest rates are so low, and that investors are chasing yield elsewhere, helps to enable it. However, these deals would still happen even if debt were more expensive. On the other hand, if the company weren't showing promising growth, then the deals would not happen.

Good luck!

It's an interesting situation that has broken quite a few other pieces of the puzzle. Companies can now raise money while private for a decade. Stock options become useless, because nobody is going to work somewhere for 10 years, or save for the taxes on the options that one can't sell. The stock market doesn't even get to sniff these companies until they are behemoths either. Along with it, the SEC loses power, and aggressive investment opportunities become harder to access for all but the very rich.

Everyone that isn't a venture capitalist of a founder on one of those companies should be concerned about this.

It's not that they need the money so much as investors want a piece of the pie, so why not? Going public just introduces a lot of paperwork and red tape. Uber is following the same path.

Ah, the IPO standoff: http://avc.com/2016/04/the-ipo-standoff/

Airbnb recently announced they have a hardware and software design lab... Maybe they're planning to introduce new strands to the business and that's what this money is for? http://www.fastcodesign.com/3062246/an-exclusive-look-at-air...

Airbnb might be trying to take on the entire travel industry. It's not that insane to raise this much capital if they wanted to try their hand at EXPE or HST's market.

In my area their main competitor is VRBO/Homeaway. They suck (for a host anyway). However, they were recently bought by Expedia.

Airbnb needs to stay ahead of Expedia. Luckily Airbnb is way ahead.

It does seem insane to invest at a notional valuation of double Expedia's market cap (or nearly four times Sabre's) to try to build a business that can compete with them though...

I like that the article says that Airbnb has showed restraint by ONLY raising $3.2 billion dollars.

Airbnb is currently under intense scrutiny in Vancouver as the city is struggling with a 0.6% (!!) vacancy rate. Some studies have suggested that around 70% of Airbnb Vancouver revenue comes from commercial operators that permanently rent out their condo units as a sort of hotel[1]. The city is studying the issue and seems in my opinion quite keen and ready to take action to end these sort of wholly commercially Airbnb operations. Airbnb would likely only be allowed for casual, infrequent renting.

Cities love to copy one another. Going forward it seems likely that if Vancouver is able to end extensive commercial renting on Airbnb, other cities would adopt the same approach.

If commercial operations are as important to Airbnb's revenue as these studies suggest, this would be a very significant change for the company. They'd have to grow quite a bit to make up for this.

[1] http://www.theglobeandmail.com/news/british-columbia/vancouv...

For a company to be worth $30B* it must either be making a lot of money or have extremely high probability of extremely high future earnings. Given that, if they need cash, why not just take a loan? Both lenders and investors suffer risk of default/company blows up, but only investors suffer a risk of "company is worth a lot, just not as much as we thought." Given that, investors should demand higher returns. So a company worth $30B should surely prefer to take loans rather than issuing equity, right?

Apparently not - what am I missing?

* I'm not convinced, but for the sake of argument...

You should consider that:

a) The company can always go tits up at any moment without prior warning, however unlikely it appears to be now. A loan will always be riskier for the founders (personal liability) even if they are printing money right now.

b) Investors want a shot at making 10x or 100x, even if that means a lot more risk. Handing a loan is safer, but you only get to make 1.4x at best; that's not the game they want to play.

> A loan will always be riskier for the founders (personal liability)

Can you explain? I thought that a major advantage of incorporation (rather than a sole proprietorship or parternship) was that corporate debts are separated from personal debts, so the investors (including founders) would only be liable for money actually invested in the company.

That's typically the case, but if you take a business loan from an old school bank, the bank will usually ask the founders to sign with personal liability on top, regardless the company status. It's a different kind of deal because with a loan the bank doesn't get to own a share of the company, so their profits depend exclusively on the company not going out of business until the loan + interest are paid out.

But surely this must depend on the size of the business?

I could imagine this happening when Uncle Enzo wants to open a little pizzaria as a retirement hobby/business, but there's no way Eric Schmidt and Larry Page are on the hook when Google wants to finance something.

Also wouldn't the bank end up owning a share of the company (or the company's stuff) if they did default?

Sure, my experience is that a bank will always ask for some sort of security with old fashioned loans, but I can't pretend I know what kind of deals would a billion dollar company get. But even if personal liability isn't on the line, things like having the bank seize your assets if you can't repay would still be an undesirable liability.

As for the bank owning shares, sure if you default they'll take over whatever they can get, as far as the contract goes, but it's not the same kind of deal. VCs or angels effectively buy shares to sell them later at a higher price, whereas the bank is just lending money and hoping to see it back with interests; the bank may take over ownership of the company if it goes bankrupt but it's not like they'd be able to sell it for much profit, if any at all.

Hunkering down for those fines, I suppose.

Interesting that this $30B valuation is only 25% higher than last year's reported valuation of $24B, whereas the year before their valuation leaped up from $10B.

http://www.wsj.com/articles/the-secret-math-of-airbnbs-24-bi...

I wonder how revenue growth has been this year. Perhaps it has slowed down further, given the relatively modest increase in valuation.

Raise anticipating a downturn ... @pmarca and @bhorowitz have advocated for such. So, this plan makes sense.

I'm curious, what are the costs of running a company like airbnb? I'm still curious about what they need money for. Are they just hiring every programmer they can find? Are there a lot of customer service hotline calls?

It seems like it's a golden egg goose.

Maybe they'll buy a stake in Tentrr.

https://en.wikipedia.org/wiki/Glamping

The Sharing Economy finally pimps out natural splendor herself

During the hypergrowth years, frugality is not rewarded, the only KPI that matters is growth, i am sure there is a lot of growth but - for now - who cares?

Can anyone explain why Airbnb's iOS app is 158mb? That's the same size as Pokemon Go.

That sounds reasonable, although, shouldnt at this stage airbnb be earning a profit?

You don't want to earn a profit. You want to lose as much money as possible. The more money you lose the better. Earning profit implies that you already matured and stopped growing and the amount of profit will always be disappointing, lowering the value of the company.

They'll be hitting severe scaling issues soon as they run out of good clients.

Hipsters and millenials are great customers, they're honest, trustworthy, logical, reasonable, friendly, loose with their cash, and easily verified. Everyone else not so much.

My 50-something year-old parents use Airbnb. So no.

Same thing here from the seller side.

Got a friend running some Bed and Breakfast hosting in the French countryside. The typical 50 year old that I'd hardly imagine selling on AirBnB (can he even use a computer ?).

It turns out that he puts his listing on AirBnb and it's actually bringing in customers.

The thing is that people have been running small inns/B&B's (and renting vacation homes) forever as something between a formal business and some money on the side. There were online listing services before AirBnB and paper listings in various tourist catalogs before that.

AirBnB is just another listing service in that context. Today, if you run any sort of bed and breakfast and can't deal with computer listings, online reservations, etc. you're at an enormous disadvantage compared to your competition. I know that if I can't immediately check availability online and have to email--or heaven forbid call--I'm much less likely to book your property.

What's mostly different about AirBnB is a lot of the quasi-legal rental of properties that aren't really B&Bs or vacation properties.

It's not just yet another listing. Nor it is about quasi-legal rental.

For the user, it allows to find room by location, enter in contact, book and prepay in a convenient way that is unprecedented.

For the hosting, it allows to easily rent, accept the money and reply to people.

There were simply no service that allowed to neither buy nor sell that easily before.

It had the side effect of attracting a lot of "black market" operations onto it but that doesn't make it about black market (even though it did play a role in the growth). AirBnB is about providing a great service to both buyer and seller.

(Anyway, there's always been a HUGE black market for property rental. The incentive to declare are not worth it. AirBnB barely make the issue more visible.)

They're also the ones that are priced out of the housing market, so that's another plus.

So AirBnB is worth 4x WYN?

That doesn't make sense to me

Larger than Hilton https://www.nyse.com/quote/XNYS:HLT

Maybe they can use some of this money to find the negative review I just posted. After many successful airbnb experiences my wife and I recently had a bad one. I wondered why the host had all great reviews. Then I found out why. Although my negative review shows up on my personal page it does not show up on the host's page or the house's. Even after waiting several days. Maybe this was a fluke but it appears Airbnb is suppressing negative reviews. Anyone else experience this?

Did you try looking at the page from a network that you haven't viewed the site from while logged in? (I'm making some assumptions here about how you access the service.) They might not show your review to you while you're logged in or if they detect the network you posted it from. Not sure what the exact motivation would be behind that but it's something to try if you haven't already.

Yes I tried from multiple computers and networks. The review does not show up.

Tell us the house and we can confirm the below "not seen from your own login" idea

https://www.airbnb.com/rooms/3878082?s=H07Rw2s1

Notice all 4 and 5 star reviews. My wife and I posted a 2 star review from her account.

Yeah that's weird. I am unable to sort of view all reviews, I am sure Indid not page through 65 reviews, I saw the same people turn up twice, (and what is with having your gravatar image with your partner in it?)

It seems odd - but it is my first ever time looking at Airbnb so I may have missed something

It shows up after 2 weeks I believe.

Are you sure the host wrote a review of you? If not, your review will not appear.

Airbnb has really good customer service, in my experience. You could contact them. Airbnb doesn't want crappy hosts either!

https://www.guesty.com/blog/host-guide-to-airbnb-review-syst...

Yes they did. I even got an email from Airbnb saying that both our reviews were now public.

Bizarre. You should definitely contact Airbnb.

I am concerned that the popularity of Airbnb can damage the service. Craigslist was safe and trustworthy for a long time.

my first two airbnb experiences were disasters, for different reasons. last-minute cancellation on a trip across the ocean, and a fucking weirdo host. never used it again.

i use hotels, and commercial vacation rental services (who happen to list on airbnb, vrbo, other sites), but the point is, i will always use a company when i travel, especially overseas, because i simply do not want to deal with the whims of an individual homeowner when i'm putting my wellbeing on the line away from home. quite frankly, fuck that.

Why do they need 1.6B + 850M?! Its literally just an app.

No. There is a lot going on behind the scenes.

I didn't know that they have their own photographers until one came to my house.

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