Airbnb Is Raising a Round at a $20B Valuation | Hacker News Reader

Airbnb Is Raising a Round at a $20B Valuation

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86 pointskyleowens1074 comments

For comparison: Marriott International is valued at $22B. In 2013, Marriott employed 199,929 workers and made $626M profits off of $12.78B revenues.

With hosts in 34k cities (from article), airbnb probably has more employees if we classified hosts as such. Also, many hosts hire of cleaners. It's quite possible that ~500k people are earning income (directly or indirectly) related to airbnb bookings.

And how can you classify someone (who works 40hrs in a real job) who rents out their backroom on a weekend as "an employee" comparable to the likes of Mariott et al?

I'd say they're far better off than employees.

Says no one who ever needed a job to pay their bills.

Airbnb's valuation seems totally irrational to me, given the nature of their business. Still, I would think any business would like to double their valuation in a year.

Mariott should convert all of their hotels into apartments, fire all of their staff, rent the apartments, and then have those people rent the apartments to other people via mAIRiottBNB.com. Boom, instant market cap doubling.

Is market cap really the only objective?

No, and doing that would ultimately destroy Marriott's business. I think Airbnb's investors would be wise to think about that.

What does Airbnb's revenues look like?

That's a bad comparison. Marriot is hugely leveraged [1] on purpose (tax shield reasons, etc. etc.), while Airbnb isn't.

It would be better to compare the firm values instead of equity values (which you can change in one day just by issuing debt and using the proceeds in a share repurchase)

[1] http://marketrealist.com/2014/10/why-ev-ebitdar-multiple-bes... Apparently they do a trick to put most of their debt off the balance sheet, through lease obligations. Thus, if you just do a quick glance at their numbers, they appear to have a low leverage.

Go back to business school my friend. Hacker news is no place for your kind

Hacker News is a fine place for anyone who posts substantive comments, like zzleeper.

What it has no place for are personal attacks. Since this account has done so more than once, we've banned it.

Anybody with a banned account who would like it to be unbanned is welcome to email us at hn@ycombinator.com. We're happy to unban users who give us reason to believe that they will follow the HN guidelines from now on.

Here is the thing, in the 90's people would look at Amazon.com and be amused, mystified and scandalized by what the company was valued at, when compared to giants like Borders or Radio Shack, with so many more employees/stores/etc. Turned out that intuition was wrong, and Amazon's way of doing things completely overtook the brick and mortar way not only in books and electronics, but for pretty much every product category.

Then again, people probably thought the same way about Webvan vs say Safeway, and they were absolutely right in that case.

So, here is the question, is AirBnB an Amazon or a Webvan? Is Marriott a Borders or a Safeway?

The valuation thing is silly, but there are many silly things around, so why just bother with that and not something else?

But the fact that a company with ~ 50 employees (not talking about AirBNB but generally about the IT sector) generates a revenue comparable to a company (in the 90s or 80s or 60s) with 500.000 employees is a very real problem. If the modern society doesn't make to overcome this somehow, I see dark times ahead.

Airbnb does have hundreds of thousands of hosts that are getting some of the revenue too. Looking at gross receipts double counts and doesn't make too much sense in sounding the alarmism.

> Airbnb does have hundreds of thousands of hosts [...]

Not sure if we're in the same page here: An "AirBNB host" and an "employee" are not the same thing. If you think that they are, then the problem I was trying to describe is deeper than I thought.

My point was you are looking at gross revenue, when they are really a booking agent, so they only get about 3% of that revenue after reimbursing hosts. Hosts do the cleaning, service, etc. that makes up the bulk of the 200,000 employee number for Marriott.

If you want to compare net profit instead of gross revenue and say it is sick, I don't think the 200,000 employees would care, since their pay subtracts from Marriott's profit.

Article says they're raising a billion dollars. The question isn't whether $1 billion is a good price for 5% of the company, it's whether $1 billion is a good price for 5% of the company, liquidation preferences, and any other special rights.

I think I'd take the $300m in profits on $600m (both wild guesses) in revenues and growing very rapidly with only a few thousand employees.

That's not fair at all, AirBnB has that giant real estate portfolio it owns that it could sell off if needed. That's real value there.

Well according to this article[1] this ups Y Combinator's portfolio value from $30 billion to at least $40 billion.

Pretty impressive.

[1] http://www.fastcompany.com/3033215/most-innovative-companies...

> 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.

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

    > 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".

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

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.

> 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.

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.

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...

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%.

The investor who has really done well with YC investments is actually Sequoia Capital. Have early-stage stakes in most of YCs "unicorns"

http://www.cbinsights.com/blog/y-combinator-unicorns/

Interesting since Homeaway (AWAY), who is probably their most direct competitor has a market cap of around $3B, a P/E of 220, on annual revenue of $450M. I'm curious what Air BnB's revenue and growth numbers are; gotta be pretty impressive.

According to http://www.wsj.com/articles/SB100014240527023038021045794510... revenue in 2013 was $250m. If you assume that doubled annually and now stands at $1bn, and that Airbnb has a similar profit margin profile to HomeAway, you need a crack pipe to get to a market cap of $20bn.

Or an understanding of exponential growth rates.

I also notice that you created your account just now, presumably to comment on this post. Who do you work for?

Yes, companies grow exponentially indefinitely regardless of addressable market size.

I must work for an Airbnb competitor, or a large hotel chain. Because everybody knows that astroturfing on HN is the best way to stop a company dead in its tracks.

How large is the market for short term housing, and how close is airbnb to saturating it?

I didn't say you were astroturfing, but I am curious what motivates you to create an account for the purpose of commenting on this story.

> what motivates you to create an account for the purpose of commenting on this story.

airbnb is a YC company, HN is a YC site, so it's easy to imagine that comments critical of airbnb wouldn't be taken kindly.

A huge chunk of the short term housing market is corporate. You're talking about stays of 30+ days and you need to book multiple rooms regularly with a single phone call. That's not Airbnb's sweet spot. The pricing in this market is also pretty competitive. I know because the investment bank I used to work at used corporate housing and the rates we negotiated for rooms in Manhattan were much better than what you can get on Airbnb for Manhattan.

If you want a publicly traded comp for short term housing, look at Extended Stay. $1.2bn in revenue. About $500m in EBITDA. $4bn market cap. And it offers a 3% dividend yield.

As for my motivation, you want the truth? It's Friday night and my wife is out of town. I had a long week and instead of sleeping with one of her boring girlfriends like I usually do I'm trolling you on HN.

"the rates we negotiated for rooms in Manhattan were much better than what you can get on Airbnb"

Which is why AirBnB's business is much better.

The one thing I know about exponential growth rates is that inevitably they turn into S-curves.

If you have $1b in high margin revs and are still doubling annually, you are easily worth $10-20b.

Airbnb is to hotels what Uber is to taxis. Not wise to compare to valuations of established businesses in one vertical.

Please explain what you mean by "Not wise to compare to valuations of established businesses in one vertical."

The poster meant that Uber and Airbnb don't have the same cost structure as the existing behemoths in their respective industries so the valuations aren't comparable. For example, Airbnb doesn't need to pay rent for their properties and an unfilled vacancy doesn't typically cost them anything.

Another issue is that Hilton, Starwood, and most of their competitors operate so many properties in the US that they are very sensitive to exchange rates and evolving travel preferences: http://www.cnbc.com/id/102435380#.

That makes sense. Thanks for explaining.

I think all these things also affect AirBnB but through the hosts. I guess AirBnB can have relatively fixed costs of operation (with volatile revenue) which is probably better than having volatile operational costs.

People used to say that Uber can't get that big since the taxi market in [city] is only x. And then Uber quickly grew its business in said city to 5x.

Exhibit A: http://fivethirtyeight.com/features/uber-isnt-worth-17-billi...

Who has gone public at valuation greater than $20B? Facebook?

Is Airbnb a bigger company than Facebook?

I just don't understand how these late stage investors think someone is going to take them out of their trade at a higher valuation.

Here's a table of recent IPO's. I have to do the math to get to the market caps, but I don't think any of them is above $20B.

http://www.renaissancecapital.com/ipohome/pricings/priced.as...

In short, where is the greater fool for these late stage valuations?

Alibaba ended their first day at about $231 billion and I haven't heard anyone say they were 10x overvalued lately: http://www.theguardian.com/business/2014/sep/19/alibaba-shar...

Other big ones include UPS ($60 billion), AT&T ($58 billion), Facebook ($81 billion), Kraft ($54 billion), GM ($49.5 billion), and Visa ($44 billion) plus a bunch of non-US ones. This article has a great table of them: http://blogs.wsj.com/moneybeat/2014/09/05/alibaba-biggest-ip...

Other than Alibaba and Facebook, none of your examples are start-ups. There are many more $20B private valuation companies right than there are historical examples of such companies making it to IPO.

Recently, I see a lot of new comers to private tech investing, particularly established wall street companies like Coatue, Fidelity, T. Rowe Price, etc. It seems like with recent recession, new regulations, and low interest rates, it is no longer very profitable just to be in the public stock market and they are trying to seek other options to bring large returns and justify large salaries/bonuses. But these bets are way more risky... Basically we are back in the same corner of financial institutions taking enormous risks for enormous rewards with no regulation.

For a late stage investor, 20% would be a huge return (i.e., a double in 4-5 years). Plus they have tremendous downside protection in the form of preferences so it's almost a no-brainer.

I don't understand the majority of the comments in this thread. Airbnb is the definition of a fast-growing, take-over-the-world kind of startup that has been amazingly successful. How can you even begin to compare it to a hotel chain with super-tight margins, or some random bubble company with no profits and no sustainable business model?

Have you ever used Airbnb? I'm not affiliated with them (other than as a user), but: welcome to the future. How can you be surprised it's a $XXbn company?

Yes and no. For one, that's a big valuation. But the bigger issue is that I think many would agree that VRBO has way better inventory.

You can compare. Airbnb has more inherent risk to be disrupted than an existing hotel chain. It's illegal in places and some could argue that, while the sharing economy is the future, it won't be eternally brought to you the providers operating today.

And to answer your question: I used Airbnb once and would be very reluctant to use them again because of customer support issues, and I have thick skin that way.

Others have explained it in more detail but these valuations are distorted because the newly issued securities usually have higher seniority and liquidation preference compared to those previously issued.

And often it's convertibles or outright debt, senior to any equity.

So the question for those pretty smart investors who have trouble finding good places for their money is not if AirBnB is or will be worth 20B, but rather 1-2 billion.

EXPEdia has a market cap of 11.82B, is airbnb really this big?

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