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?
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.
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.
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.
To clarify, do you mean some of the money will be used to buy back shares from early investors giving them a nice profit?
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.
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.
That's not what Groupon did.
:-)
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.
Can you name one of them? I can’t find any, and sending gifts or bribes is lobbying.
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 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.
Airbnb needs liberal rent-out-your-home litigation
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.
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.
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.
It doesn't. Priceline.com is a very small part of PCLN. It's mostly Booking.com.
They're publicly owned companies that make a profit for shareholders.
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.
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?
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 :)
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).
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.
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.
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.
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!"
In reality, opinions from anonymous engineers who know what is being sold may be the best you can get.
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?
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.
As I said, the valuations are not above criticism.
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
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-...
I personally think yes, they'll saturate their market fairly quickly from here on out. Also, I expect they'll start attracting competitors soon.
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...
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.
IMHO I agree with you, but if the market will bear it can you blame them? Cheap capital is always appreciated.
Of course, that's kind of the point -- to get the money out there flowing through the economy's veins.
2) Buying up competition. Look at what HomeAway did before their IPO.
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.
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.
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.