Airbnb valued at $13B ahead of staff stock sale
cnbc.com
cnbc.com
* Hilton Worldwide has yearly revenues of $9.7b.
* Marriott International has yearly revenues of $11.8b.
* Best Western has yearly revenues of $6b.
Now, I don't know what their current revenues are. Based on how many people from all over the US I've spoken to that use them frequently already, I'd assume they're growing at a decent clip. Furthermore, they have virality on their side, where their competitors just plain don't. It takes years to open a new hotel. If Airbnb wants to deploy to Casper, WY, they only have to make the effort insofar as basic background checks. If they want to do a stronger deployment, they find maid services and anything else they might need to support local hosts.
Furthermore, as much as there are local law issues in places like NYC against them, I don't anticipate those lasting long or having a large effect on their revenues. The same way that if you're in Uber's way you get painted as being anti-jobs, Airbnb gets to say the same thing. And that's in the few places that have them.
I think they've got a long way to grow. I look at $13b, and part of me thinks that might even be soft, especially if they look into starting their own hotels, to provide a higher 'minimum' to a given city, which allows Airbnb to maintain itself as a premium brand(as yet, I've never stayed or heard anyone else staying anywhere that wasn't a much better deal than anything else nearby), even if their prices don't reflect it.
Remember: These valuations aren't for what a company is currently worth. Otherwise, there's no point to investment. They valuations are for where they see the company going, and more probably, growing past.
As soon as they're big enough, they will start supporting these taxes and pushing for laws that require collection, as it makes it more difficult for others to enter the market the way they did.
You have to find a weak point in Airbnb. Maybe focus on particular underserved cities. Maybe only allow amazing properties and aggressively poach them from Airbnb. Maybe try to enforce a common high-end experience by providing hosts with branded physical goods. Maybe piggyback on an existing hotel brand. Maybe market to the business market exclusively (worked for LinkedIn.) Just some quick ideas, and maybe not viable, but just cloning Airbnb isn't going to get you far.
Airbnb pushes out updates frequently, their site offers a great experience to the user, and they have a solid team of developers that stay ahead of the game. They're going to be here for a while.
Just take a look at this list of the top 25 hotel owners: http://nreionline.com/research/real_estate_top_hotel_owners_...
A few are the brands themselves, since they are the owner/operator for some properties. But many are companies you have never heard of that own hundreds of hotels.
Nit pick: a valuation is what a company is currently worth. That current worth us just based on anticipated future cash flows.
This isn't a nit-pick, it's a very important point that is sometimes overlooked by the less financially-inclined.
So often people will argue for some obscene valuation based on the fact that the company is growing rapidly. Well, the whole point of a valuation model is to capture these elements and estimate a price you're willing to pay today for all that future growth.
Of course, that's way easier said than done, especially in a fast growing start-up. But these are sophisticated investors, who are trying not to leave any money on the table.
You: "Great, how much will you sell them for when they are worth that $1000"
VC: "$2000"
You: "And who will buy it at that price when they worth only half"
VC: "Let Wall Street worry about that"
VC: "I am going to buy these goods at $1,000 today because I expect to be able to sell them for $1,100 in one year".
How they arrive at the $1,100 is based on the amount of risk there is and the return they could get on a zero-risk investment.
Seriously, finance seemed like mumbo jumbo to me to too before I learned about it. But it's actually pretty interesting. This is the calculation for present value.
If this is true, it will also apply to their competitors, right? Either the prices of Marriott will fall if/when they stop charging some crazy-expensive taxes on their guests, or AirBnb will have to start paying/charging for those taxes. One way or another, it'll change. Right now, one of AirBnb's advantages is that they are ignoring zoning restrictions and the like; either those restrictions will go away or they'll have to play by those rules.
To me, the biggest thing AirBnb has going for them is that they are choosing to play fast-and-loose with the laws, and hoping that they can grow fast enough to change them (similar to Uber). That gives them a huge advantage against the established businesses who have to play by the rules. Marriott can't just say "we're going to build a giant hotel in this area that isn't zoned for it", but AirBnb can hide behind its hosts because presumably they hold all the liability.
I imagine there will be some pushback at some point where AirBnb presumably makes most of their money: in big metropolitan areas. In Boston, where I'm at, these are generally illegal/against rental policies. People tend to look the other way for now, but at some point it might become a bigger issue. For me, personally, when I was setting up my condo association, myself & the other owners specifically wrote it into our documents that AirBnb and short-term-rentals are NOT allowed without prior authorization.
On a separate note, I wonder what percentage of the hotel revenue is business travel. I know in companies I've worked for in the past, they had some pretty good deals set up with hotel chains, so no matter where you traveled, you stayed at whatever the preferred chain was.
Hotel prices often fluctuate wildly -- a room may cost $59 one week and then a few weeks later cost $299 because a trade show is in town, etc.
Cities like New York have an insufficient supply of hotel rooms to meet demand. There are often no hotel rooms in NYC available for last-minute booking for under $400/night.
With AirBnB, even if everyone paid all the taxes, there would still be thousands of extra rooms available in NYC, many of which would be cheaper than $400 per night.
Hotels are a nice idea if you need the sheets changed every day, the room cleaned every day, porters to bring up the luggage, a pool, a front-desk to call to ask how late the pool is open, etc.
AirBnB also ads value by offering lots of other permutations. I stayed at an AirBnB in DC and was asked to put my own sheets on the bed (there were freshly laundered sheets in the closet). Upon leaving, I was asked to remove the sheets I used and put them in a basket. The 10 minutes it took me to do those things effectively saved me $100 on the stay, and yes I probably avoided $10 in taxes too.
You don't think this will happen with AirBnb, similar to "surge pricing" with Uber? Continuing with supply & demand, at times of great demand, prices will rise no matter if it's a hotel or AirBnb, even if there is a great deal more supply, there will always be huge bursts of demand (trade shows, what-have-you).
AirBnb would seem to flesh out the low-to-mid-range end of the market. If money isn't an object, there are places to stay in NYC (I think--I'm not at that level, myself!). But if you're looking to stay in NYC comfortably for fairly cheap, AirBnb exists with offerings that fit that, albeit they may be illegal (right now). I just question whether that market is "worth" more than the major chains (based on valuations, which I know is a shaky number to use).
Which is better is a matter of taste, I suppose. A lot of people love hotels. I don't. But, for the price ranges that cover 80% of rooms in most cities, I think it's hard to claim that AirBnB is only better value at the lower tiers. There are some awesome places at the 'sold my company to google' price ranges.
In SF on new year's eve, getting a yellow cab can take up to an hour (or more). One year it took me nearly two hours to get a cab to go home. There is way more demand than supply so there is a huge queue.
With Uber's surge pricing, the price simply goes up to help supply meet demand. You can book an uber at 2x or 5x surge pricing and count on it showing up a few minutes later, and count on getting home at a reasonable time.
The best part, however, is that it's in Uber's best interest to have surge pricing happen rarely. Nonetheless, it's a great way to attract new drivers. Want to make $500 on New Year's eve, sign up to be an uber driver and drive from 12:30 to 3am and benefit from surge pricing.
This opens up a larger pool of drivers, which in turn increases supply and reduces the price.
There are certainly price fluctuations with AirBnB too, however increased supply makes the spike less pronounced.
AirBnB can allow individuals to do the work of providing accommodation part time, after work, as students, working mothers, retired people. We often mention disruptive businesses making new markets displacing non-consumption rather than substituting competition. AirBnB does something similar on the supply side.
Also, since AirBnB basically unlocks the productive potential of real estate, there's an interesting financing angle. Individuals have the ability to finance the purchase of a house or apartment with mortgages on pretty good terms. There is no other financing product available to the common man en masse comparable to home mortgages, certainly not business loans. AirBnB can help turn that into a business.
Owner-operator setups have all sorts of other little efficiencies over more hierarchical monolithic setups. Hotels have huge overheads. A lot of those are like airline or airport overheads in the sense that they're inherited from a world where hotels were originally designed for the rich (the gentry in the case of hotels) and then redesigned for the "discerning business traveler".
The condos and apartments people rent out on Airbnb are built by developers.
So as Airbnb becomes more popular, developers will recognize the ability for tenants to profit from renting out units. In response, they will try to capture that profit on the front end by raising the selling point of the unit.
Practically, the increases in property value Airbnb generates will ultimately flow back to developers, and make housing less affordable.
It's a double whammy for the people that are buying units and not renting them out, because they now have to more for units that don't want to rent out.
Edit: Also, the U.S. real estate stock depreciates by 3% annually, so it ultimately will have to be replaced with new units.
Since AirBnB allows the rental of full units, individual rooms, and even shared rooms, it makes housing more affordable. Now, someone can afford a 2BR and plan on renting out one of the rooms a few nights a month to help afford the rent.
If there were massive competition, the price of renting a room on AirBnB for one night would approach 1 30th of the monthly rent price. Right now people typically rent a flat for one year. Why is that? Why not rent an AirBnB for 3 months and then try living in a different neighborhood? All these options are enabled by AirBnB and all of this extracts more value from existing infrastructure.
Both alternatives include the additional value that AirBnB creates and I'd expect both to result in increased investment in housing across the board, both new construction and improvement.
Also, real estate in general is a very capital intensive industry, which takes out 99% of competition anyways. How many people are there that can raise $200 million to build a project. Not many.
First, you don't need many for competition; you just need a few. Second, there are lots of people who can raise a mere $200 million.
lol ok
First, just because you're making more doesn't mean developers can charge more. Building is a fairly competitive industry. Land is usually the thing that can increase in value in response to rising demand.
Overall when thinking about housing prices the thing to consider is supply. Housing stocks take time to build up and there are all sorts of forces preventing them from increasing. That's really a different discussion but my personally opinion on it is that housing costs go up where and when the government and the citizenry want it to.
Rising house prices are a weird pathology. They help credit markets, which everyone is fond of (banks, developers & home buyers directly; retail and any consumer spending focused industry indirectly). Homeowners feel wealthier when their property increases in value, even though the house is still the same house and they have no way of realizing those gains without moving to a different town.
Selection bias says the most responsive hosts will get booked early so the bookings that still show as available at the last minute tend to be less responsive hosts. A room that's still showing up as available at the last minute might be doing so because the host went on a hiking trip and forgot to update the calendar rather than because it's actually available.
Although I didn't realize you could use "has instant booking" as a search parameter - thanks! Now if only I could get hipmunk to honor that restriction too...
That makes the value quite hard to pin down, a bad court case or two could severely harm Airbnb. It's not likely that there will be a court case that makes tax paying and code abiding hotels illegal, which makes hotel chains much easier to value.
I don't see the law in New York city going anywhere. If anything, it is only going to be enforced more aggressively. While it isn't clear that that will be enough to dissuade everyone who is currently operating one or more illegal hotels using the service, I would not be surprised if the vast majority of the "entire place" listings currently found on Airbnb in NYC disappear over the next year as it becomes an increasingly risky thing to do. Of course, I don't imagine that having a huge impact on Airbnb's operations overall unless many other cities do the same thing.
Sometimes the host says "sorry, the calendar is wrong - that room's not available". Sometimes the host doesn't reply at all, in which case Airbnb releases the deposit back but you've lost a day or two and now there's less availability.
So far I think I'm 0-for-3.
That suggests a lot of future growth.
I must be missing something.
Airbnb ultimately depends on how much renters, and indirectly seekers, are willing to pay. Its brand is not as well established as Facebook's (at least in my country). If a compelling alternative came up with lower fees, what would that mean to Airbnb? I'm not sold yet on its permanence.
Here in the UK Airbnb passes the random friend check, random non-techies know what it is and have used it. In fact I'm often surprised by the people that have.
I think their pricing is similar to ABB
Also Homeway has a large inventory, I believe, but a lower market cap: 3B vs 10B.
I think their innovation was allowing shared housing and generally any quirky property. HomeAway and VRBO focused their efforts on professionally managed second homes and vacation properties.
By now the network effect has kicked in, and any newcomer would have to convince buyers they're relatively reliable and scam-free.
Startups aren't burning through a few hundred million and shutting down inside a year. There's no mass of IPOs by companies with no revenue and no realistic plan for getting revenue. And I don't see IPOs posting 500% gains on the first day.
Airbnb's been around for 5+ years, provides something people want, and obviously has revenue (though I wouldn't know how much). And so far its investors are all VC or private equity, including a lot of VCs who saw the first bubble up-close. Really, are there any funded startups right now without VCs who came out of the first bubble?
"Valuation" is such a terrible term, all it really means is "the ROI expected by the investors". We try to make it very complicated with analysis of term sheets and growth rates and all that, but it's just a gamble on the part of the investor. The only difference between gambling and investing is that a gambler doesn't get to set the size of the payout if they win.
It's an effort to predict what the company could sell for if an interested buyer made a concerted effort to buy it, but until that happens, it's just a made up number and not newsworthy at all.
This is a great point, but valuation is still a meaningful term, it refers to how much someone thinks the company is worth. Your friend bet $1 that your company is worth more than $10,000,000. We tend to trust people's opinions when they put their money where their mouth is so we pay attention to valuations, but we also need to consider how much money they put where their mouth is.
The problem is that no investor is an oracle, and no matter the size of their investment, or what statements they make, can actually make a company have some value until it's sold.
At best you can gauge a company's "value" (not valuation) by their revenue and profit, this is an instantaneous assessment backed by hard figures. And you can make a projection, which is a best guess, of the future value of the company based on period over period growth and some notion on how big the market is. But we also don't know what kind of fanciful numbers were being used.
Suppose my friend starts a company making internet connected toasters. Well everybody likes toast, therefore size of market = humans on earth. No! You'd be surprised at how unscientifically figures for market size are determined.
Here's one I've actually heard for a piece of high-end technical software targeting the Federal government: The U.S. Federal Government employs about 5 million people, if we sell a copy of our software to each employee at $3k/license our market is worth $15 million dollars! And then they're very surprised when the market does not turn out to be that big, and there's a mad last minute scramble to target local government because "there's way more local government than there are federal government".
Remember the Segway? They actually hired a professional consulting firm to gauge market size. You know what was predicted? 31 million units inside of 10 years and 50,000 in the first year. Money exchanged hands for this prediction. Valuations were made based on this work. This was supposed to be a company the size of Apple. How many have actually been sold? Nobody knows, but it appears to be well under 50,000, worldwide.
But people in suits said this stuff! With nice hair and fancy diplomas on their walls! If I can't trust them who can I trust?
I'm not saying figuring out market size is easy, it's hard. So hard that it's wrong far more often than it's right (something like 90% of businesses fail). "Valuation", of which market size should be a critical component, is misleading and not particularly meaningful. And the problem is that we take unmeaningful words like that and turn them into major news.
Very little of this is coming from an overly hyped up general populace. The NASDAQ is increasing, but it is a fairly slow steady increase compared to the other indices - nothing like the crazy rocketing we saw in 1999. There are few IPO's and they are mostly of relatively stable and profitable companies.
The logic is that there is an inconsistency in growing a company to the billion scale while you are just having a salary. It gives a financial safety to the people involved in the key decisions.
http://www.bothsidesofthetable.com/2009/09/02/should-founder...
Maybe the one you had in mind.
Logic is this : At that stage of a business, you want founders who are looking for a IPO or billion dollar business. If that founder still has a mortgage on his house, he is going to indirectly steer the company in more 'safe' ways to ensure his nestegg retains value. If you just give that founder a few million, hes no longer motivated by that initial cash payment and only has the moon to shoot for now.