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Comment by JoePonzi | Hacker News Reader

> Well according to this article[1]...

Be careful about headlines written by kids playing journalist. The value of the companies in YC's portfolio might be $30-$40 billion but that does not mean that the value of YC's portfolio is $30-$40 billion because YC doesn't own 100% of the shares.

> Pretty impressive.

Or scary. I heart Airbnb but the idea that it doubled in value in less than a year and is worth almost as much as say Marriott, which owns real estate, generated almost $2 billion in EBITDA in the past 12 months and returns cash to shareholders in the form of a dividend, is absurd.

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98% of Marriott properties are actually owned by people who are not Marriott. Source: their annual report.

I went looking for this gotcha, because the first time I realized it, I became much more bullish about Airbnb's chances. Most of the major hotel chains have been working hard for years to adopt the capital structure that Airbnb had on day 1.

Everyone wants to be a brand/online ordering system which just drives business to contracted hotels for a fat cut. This makes them vastly more capital efficient, reduces their exposure to e.g. Chinese real estate, and lets them get e.g. 20% of a night's stay with 1% of the staffing requirements of actually running hotels.

You mean hotels would like to be glorified web directories with hundreds of thousands of 'employees' who provide the rooms, do all the work, are solely on the hook for the vast number of laws and regulations they're breaking, and pay the hotels for this privilege?

Next you'll be saying insider trading is lucrative as long as you don't get caught.

My parents ran a small hotel associated with a major chain and you don't know what you're talking about.

There are multiple models used by hotel chains for years. Some lease properties that they brand and run. Some get paid to manage properties owned by third parties. Others franchise to property owners. These models are vastly different from what Airbnb has. In every case the hotel chain has a lot of control and the inventory locked in.

Airbnb has no control over its inventory and doesn't own anything. The risks of this are huge.

Btw Marriott still owns a couple billion dollars worth of real estate.

Every step of the way someone says something like this

"is worth almost as much as say Marriot ... is absurd"

here's an example around the $10B valuation

http://qz.com/190432/airbnb-doesnt-even-own-a-bed-but-its-ba...

I'll just make a meta-point. The parties that are investing in AirBnb at $20B are not some retail pikers chasing a bubble. TPG for example. They're literally among the most sophisticated institutional investors in the world. I'm not going to make an appeal to authority, but I will say that dismissing parties with real expertise in a casual manner is usually poor judgement.

Furthermore, I think its almost certain that the investment research that led the teams at Fidelity and and TPG to value AirBnb at $10B+ is not 'absurd'.

So a more interesting question is 'What exactly is it that the TPG and Fidelity' see?

Yeah. TPG are gods. http://nypost.com/2015/01/01/tpgs-2015-ipo-plans-hit-fundrai...

let me give you the elevator explanation for a $20B valuation.

'Barclay’s report estimates that Airbnb’s current bookings are about 37 million room-nights per year ... predicts that Airbnb’s growth in bookings could triple in size in the next year, '

http://qz.com/329735/airbnb-will-soon-be-booking-more-rooms-...

So AirBbB is already at 37M bookings, expected to triple to ~$120M. Assume the average cost of a room is $200 and you're talking $24B in gross revenue. Of that AirBnb takes 3% ... working out to ~$720M. Now here's the beauty ... to generate that $720M AirBnb doesn't need that many employees. If we go on LinkedIn there are 2,257 employees listing AirBnB as their employer. Let's say average cost is $400K that's $90M. Say there's another $100M in expenses (server hosting costs, office space, etc). We can see how AirBnb could be generating $500M in profit. Slap a 40x multiple on that and we're at $20B.

Furthermore there are some incredibly appealing characteristics. One, expenses won't grow with revenue. If AirBnb goes from 120M to 240M bookings their expenses are relatively fixed. They'll have to add additional server capacity but the for the most part that will just be pure profit.

Two, and more important, they're got a tremendous competitive position. The degree of customer captivity is highly under-appreciated. Once someone makes an account and establishes their credibility on one platform they're going to be reluctant to go through the effort to do that on another platform. Combined with their market leading position it will make difficult for anyone to unseat AirBnb.

So as I said before, I think what's interesting is figuring out what serious investors see that justifies a $20B valuation.

Right. Like the sophisticated institutional investors of the S&L days? Or the Recession of six years ago, or the Depression...

Conversely, don't underestimate Airbnb's crazy size (like I was until recently), it's actually sort of mind boggling.

In NYC, Airbnb has about the same number of rooms listed as the top 30 hotels combined.

https://news.ycombinator.com/item?id=9090766

You first point is a good point but...

> I heart Airbnb but the idea that it doubled in value in less than a year and is worth almost as much as say Marriott, which owns real estate, generated almost $2 billion in EBITDA in the past 12 months and returns cash to shareholders in the form of a dividend, is absurd.

Apple, a mega-cap company, has doubled in value in the last 3 years. That's somewhat "scary".

On the other hand, it is completely normal for a startup to double in value in 1 year.

Arguably, pretty much all moderately successful, venture-backed startups will reach that growth rate at some point. A conservative example: startup gets seed funded at a (say) 200k valuation then, 8 years later, gets acquired for 50M. That's an annualized 99% per year.

Of course, homeruns like Google, Facebook, etc, had years with growth much higher than 100%.

    > but the idea that it doubled in value in less than a
    > year and is worth almost as much as say Marriott, which
    > owns real estate, generated almost $2 billion in EBITDA
    > in the past 12 months and returns cash to shareholders
    > in the form of a dividend, is absurd

Unless you believe (which I don't, but whatever) that it poses an existential threat to Marriott, and that it will essentially kill all non-business (and some percentage of business) hotel bookings with time; it's also got the advantage that I've heard people say "just Airbnb it" or "just use Airbnb", but I've never heard anyone say that about Marriott or the Hilton...

I work in finance (hedge fund management) and my wife works in sales for big pharma. I've never heard any of our rich, yuppie friends say "just use Airbnb." It's more like "Where did you stay?" "The Four Seasons" Anecdotes are worthless.

Maybe. But to be fair, those are two completely different markets. I went to school 45 minutes north of Manhattan...airbnb, had it existed back then, would have opened up the City to me and my friends in ways I can't imagine. And airbnb does have some pretty expensive and exclusive properties available. I doubt The Four Seasons really cares what Airbnb does because, again, it doesn't really matter to them.

Mcdonalds carved out a pretty good niche not catering to your yuppie friends.

yuppies eat plenty of mcdonalds. primarily breakfast/coffee, and salads. they 'pivoted' away from only junk food a few years ago after the supersize me fiasco and have done quite well with it. have you seen an mcdonalds at 8am in a business district? it's like a fuckin' crime scene.

also, when yuppies get drunk in the city... all bets are off.

Err, McDonalds is significantly declining and their CEO is stepping down this weekend: http://www.businessinsider.com/mcdonalds-ceo-is-out-2015-1 Don't assume what you see locally is how things are at a macro level.

LOL look at their stock price and market cap over the past 15 years you simpleton.

Anecdotes are worthless, sure, but even the richest of my friends would apparently stay in a luxury loft in the city that another soulless hotel chain. Airbnb does luxury as well...

I don't care that much about whether I'm staying in a Marriott or Hilton, but I like sleeping in a bed containing a regulated small amount of bedbugs and semen, not some desperate guy's rented-out couch.

I'm sure if you ask the guy, he can put the bedbugs and semen you want on his couch before you sleep on it if that helps with your transition.

>existential threat to Marriott

People renting out their homes and apartments, in many cases unlawfully, is an existential threat to hotels?

How many rooms does Marriott have in, say, SF, versus how many rooms AirBNB is currently floating?

And if hotels start closing down, then people start complaining about problems when staying at strangers houses, leading to regulation of offering places for short-term stays (wait, that already exists, AirBNBers just ignore it)... don't we end up in the same place?

Eventually someone will buy an old Marriott hotel (after they cease to exist) and put all that inventory on Marriott.

> I've heard people say "just Airbnb it" or "just use Airbnb", but I've never heard anyone say that about Marriott or the Hilton...

So you haven't booked a trip in a corporate environment then? There are places where companies have deals with chains like Hilton and staying at an Airbnb would require some extra explanation on the expense report.

Sure. But I've also worked at a billion dollar multinational where my boss suggested I use Airbnb in preference to what he referred to as "the shitty Hilton".

There is a good chance the traditional hotel companies will all be on Airbnb's platform sooner or later, hence the valuation you see here.

More scary too I think. Hilton's market cap is $27B.

I think YC owns about 3 point something % of the companies (7% less dilution) so their portfolio is worth ~ $1bn

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