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Comment by dsacco | Hacker News Reader

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.

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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Clearly the market is different now, but basic economic laws of nature don't get repealed.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.

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.

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.

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."

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?

>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.

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