AirBnB - likely 2019 IPO

[gfp]

I have no idea what valuation AirBnB is looking to get at their IPO, but as it is discussed as a likely 2019 IPO, and it is the first IPO I have been interested in in quite some time, I thought I would start a thread.  Perhaps others have interest in this business model.

 

Bill Gates has mentioned before the difference between AirBnB's network / platform effect and that of an Uber or Lyft.  Basically, Uber has to be the dominant network (of drivers/users) in each local market.  It can be number one in the USA but struggling in Asia, etc..  But AirBnB is a truly global platform.  The property owners go where the renters are, and vice versa.

 

My favorite part of the AirBnB business model, and the likely reason it hasn't had to take gobs of venture capital financing in, is the enormous float that the company generates.

 

When someone books an AirBnB rental, their credit card is charged in full.  AirBnB then holds that money - say for an average of 2 months or more - and then pays most of it to the AirBnB host the day after the guest actually checks in to the property.  The more the platform grows, the more float sits with AirBnB.  It's better than the payroll processors (ADP, Paychex, etc) - which are often cited as enjoying the benefits of float (but usually only when interest rates are rising).

 

As I mentioned elsewhere, my wife has some AirBnB rentals (she is the host, but never sees the renters - self check in/out, stand alone properties).  When she launched these rentals, they were on VRBO and AirBnB simultaneously.  Both companies allow you to easily sync your calendars so that a property is not double-booked.  She got 98% of the rentals from the AirBnB platform.  VRBO was worse on payment transparency to hosts and a few other things that would turn off hosts.  So she quickly dropped them all together.  We've had AirBnB guests from all over the world and have stayed in AirBnB properties all over the world.

 

It's tough to unseat the dominant global platform on something like that.  Risks include increasing local regulation - AirBnB is seen as the enemy of neighborhoods with actual neighbors, affordable housing, etc.  But in my experience it is hard to put the genie back in the bottle on stuff like this.

 

The Float and the dominant global network are what attracts me to this business.

 

Anyone else have thoughts on it, while we wait patiently to see a price?

[Guest ajc]

 

With any luck it won't price that far above its last $31B valuation. We'll see.

Of the major unicorns that're expected to IPO this year, it looks like the most interesting.

AirBnB Experiences seems under appreciated as well.

I've noticed it's often a good idea to invest only after lock-up periods expire though. Also usually allows time for some of the hype to dissipate.

 

 

 

[Hielko]

As I mentioned elsewhere, my wife has some AirBnB rentals (she is the host, but never sees the renters - self check in/out, stand alone properties).  When she launched these rentals, they were on VRBO and AirBnB simultaneously.  Both companies allow you to easily sync your calendars so that a property is not double-booked.  She got 98% of the rentals from the AirBnB platform.  VRBO was worse on payment transparency to hosts and a few other things that would turn off hosts.  So she quickly dropped them all together.  We've had AirBnB guests from all over the world and have stayed in AirBnB properties all over the world.

I'm a regulator user of AirBnB and I like their platform a lot. But that's sort of obvious that there are many people like me. Otherwise the business wouldn't be as big as it is today.

 

Small note w.r.t. float (that I don't think is very important anyway), but these days you can pick if you want to be charged the full amount when you make your reservation, or spit it in two transactions with the last half of the booking amount only charged close to your booking date.

[gfp]

Thanks Heilko - that's true, they did recently offer the option to pay half upfront and half closer to your stay for reservations over $250.  Curious why you don't think the float aspect of the business is very important?  Seems they are holding a revolving fund of several billion dollars of other people's money at any given time - an amount that continues to grow.  Sounds useful for a high growth company that doesn't need much capital to grow as it is.  At least useful for founders and early investors who want to minimize dilution.

[SlowAppreciation]

Completely agree, and I'm excited to take a look at their prospectus. I was a host for 4 years to pay off my student loans, and am a big fan of the product and the business. As you mentioned, they used to (not sure if they still do) charged users before their stay, and paid out hosts on the day after check in. So Airbnb was definitely generating good float. For what it's worth, the former CFO (from Blackstone) had apparently tried using that float: https://venturebeat.com/2018/02/07/airbnb-reportedly-built-an-internal-hedge-fund-that-makes-5-million-per-month/

 

That's great if you have someone who's honest and trustworthy a la Buffett... not so great if they're not as it could potentially jeopardize the business. 

[Liberty]

 

With any luck it won't price that far above its last $31B valuation. We'll see.

Of the major unicorns that're expected to IPO this year, it looks like the most interesting.

AirBnB Experiences seems under appreciated as well.

I've noticed it's often a good idea to invest only after lock-up periods expire though. Also usually allows time for some of the hype to dissipate.

 

They certainly have a stronger network moat than other unicorns like Uber, since they have a global network and Uber has local clusters (when you're in city X, you don't care how many drivers they have in other cities, but when you're traveling, you could go anywhere so they need global inventory, and any competitor who wants to compete also needs global inventory).

[Spekulatius]

Does a valuation of ~$30B for Airbnb make sense? Are there any revenue and profit numbers out there for this company? The combined market cap of HLT and MAR is less than $60B and those two are doing pretty well at the moment and control a significant part of the hotel space.

[PLynchJr]

Booking Holdings is at 80B.  Without seeing the numbers...30B doesn't sound crazy to me.

[gfp]

I don't even know if the numbers they throw around in public for "revenue" are their revenue cut from fees or the entire value of each booking (the vast majority of which is passed through to hosts).  I am very much looking forward to seeing detailed financial statements.

[Pelagic]

Does a valuation of ~$30B for Airbnb make sense? Are there any revenue and profit numbers out there for this company? The combined market cap of HLT and MAR is less than $60B and those two are doing pretty well at the moment and control a significant part of the hotel space.

 

The article linked above regarding their internal "hedge fund" gives some numbers.

 

But the financial details indicate that Airbnb is going strong: “An email to the board and other major shareholders last month [Jan 2018] helped instill further confidence in the business. Airbnb’s earnings before interest, taxes, and other expenses came to $93 million, more than double the company’s forecast of $36 million, according to the email reviewed by Bloomberg. Revenue beat expectations by about $120 million.”

 

If their internal fund is accounting for up to $60M of that, is that sustainable given the option to now pay only half the deposit at the time of booking?

 

$30B seems like a lot to pay for $100M of EBITDA, probably higher now since the article is almost a year old.

 

https://venturebeat.com/2018/02/07/airbnb-reportedly-built-an-internal-hedge-fund-that-makes-5-million-per-month/

[SlowAppreciation]

Does a valuation of ~$30B for Airbnb make sense? Are there any revenue and profit numbers out there for this company? The combined market cap of HLT and MAR is less than $60B and those two are doing pretty well at the moment and control a significant part of the hotel space.

 

The article linked above regarding their internal "hedge fund" gives some numbers.

 

But the financial details indicate that Airbnb is going strong: “An email to the board and other major shareholders last month [Jan 2018] helped instill further confidence in the business. Airbnb’s earnings before interest, taxes, and other expenses came to $93 million, more than double the company’s forecast of $36 million, according to the email reviewed by Bloomberg. Revenue beat expectations by about $120 million.”

 

If their internal fund is accounting for up to $60M of that, is that sustainable given the option to now pay only half the deposit at the time of booking?

 

$30B seems like a lot to pay for $100M of EBITDA, probably higher now since the article is almost a year old.

 

https://venturebeat.com/2018/02/07/airbnb-reportedly-built-an-internal-hedge-fund-that-makes-5-million-per-month/

 

Can't imagine it costs a lot to run Airbnb though. No real estate, no data centers, small sales org, no hard assets... can just rent computing from AWS or Azure. Don't have to invest in data centers like other tech cos because it's not something they compete on. If FB's gross margins are ~85%, hard to see how Airbnb's aren't either. And operating expenses are just salaries for engineers and designers, and some litigation costs.

 

Seems like the business would have tons of operating leverage.

[scorpioncapital]

I am not so excited. I love Airbnb and use it for travel and even medium term and long term rentals..but it is very easy to just get the hosts phone number or book a few days and extend privately the remainder. Not always but I bet there is huge leakage. Still..there is no business as useful as Airbnb. It really is amazing.

[bizaro86]

I am not so excited. I love Airbnb and use it for travel and even medium term and long term rentals..but it is very easy to just get the hosts phone number or book a few days and extend privately the remainder. Not always but I bet there is huge leakage. Still..there is no business as useful as Airbnb. It really is amazing.

 

I run rentals on airbnb in a major city catering towards business travel. I've never had anyone try to extend directly. I set up my own site to market independently. I put my prices 33% lower than airbnb prices, even though they only charge low single digit fees.more than 99% of my bookings come through them, even at the higher price point.

 

Also, a significant percentage of my customers are staying for the first time on airbnb. They are growing very quickly, and their operating leverage is likely very high. I've interacted with them only a few times and paid many thousands in fees.

 

Other factors: they are adding more tools for professional hosts. Their previous UI was very cludgy for managing multiple properties. Now it is much better, which should allow them to take market share in independent property managers, which is a big market in vacation areas.

 

I received a survey from them awhile back asking whether I'd be interested in getting an advance on my payments (paid prior to check-in) for a discount. This would essentially be a factoring arrangement.  I said no, as their proposed pricing tiers were very, very high (20%+ effective rates).

 

However, running a hosting business eats working capital, and doesn't necessarily attract financially sophisticated people. I think there is a very good chance they will be able to deploy a few billion in float at double digit returns on that.

[gfp]

Agree with a lot of what you are saying bizaro.  Just today we got a review from another first time airBnB user.  Shocking how many young people are still trying it for their first time.

 

Regarding the AWS service, I'm curious if you experience the same thing I experience.  I find that the databases for Hosts are really slow.  Calendar, for example, seems to take forever to load - in the app and on a browser.  Do you find that to be the case with Host Calendar?

[bizaro86]

Yes, I find calendar slow to load. That would be something they could improve. On the other hand, there is a 0% change I move away from them over that issue.

 

Also, I think more regulation of the space is likely to increase their moat as the incumbent. They are on the ground floor in every jurisdiction, so get integrated into the process. To create a competitor you need to launch at least nationwide (and probably world wide). When airbnb started they just launched their website everywhere.  Now a competitor would need to integrate hundreds of municipal regulatory regimes at launch. Decent moat just from that...

 

I tried to get some shares on a few secondary sites but couldn't find any. I'd definitely pay a $30B value for it, but I bet it comes out higher than that. 

 

Revenue/bookings are up huge since they announced that $100 MM EBITDA. I think this business is worth more than Booking.com.

[SlowAppreciation]

I am not so excited. I love Airbnb and use it for travel and even medium term and long term rentals..but it is very easy to just get the hosts phone number or book a few days and extend privately the remainder. Not always but I bet there is huge leakage. Still..there is no business as useful as Airbnb. It really is amazing.

 

Out of ~500 people I hosted, this happened < 10 times.

[SlowAppreciation]

I am not so excited. I love Airbnb and use it for travel and even medium term and long term rentals..but it is very easy to just get the hosts phone number or book a few days and extend privately the remainder. Not always but I bet there is huge leakage. Still..there is no business as useful as Airbnb. It really is amazing.

 

I run rentals on airbnb in a major city catering towards business travel. I've never had anyone try to extend directly. I set up my own site to market independently. I put my prices 33% lower than airbnb prices, even though they only charge low single digit fees.more than 99% of my bookings come through them, even at the higher price point.

 

Also, a significant percentage of my customers are staying for the first time on airbnb. They are growing very quickly, and their operating leverage is likely very high. I've interacted with them only a few times and paid many thousands in fees.

 

Other factors: they are adding more tools for professional hosts. Their previous UI was very cludgy for managing multiple properties. Now it is much better, which should allow them to take market share in independent property managers, which is a big market in vacation areas.

 

I received a survey from them awhile back asking whether I'd be interested in getting an advance on my payments (paid prior to check-in) for a discount. This would essentially be a factoring arrangement.  I said no, as their proposed pricing tiers were very, very high (20%+ effective rates).

 

However, running a hosting business eats working capital, and doesn't necessarily attract financially sophisticated people. I think there is a very good chance they will be able to deploy a few billion in float at double digit returns on that.

 

Similar experience when I was a host. If I had to guess, maybe 80% were first time users. But this was back in 2010 - 2015.

[bizaro86]

I'm probably around 40-50% new users.

 

Interestingly (from a very small sample size) they seem to be increasing their wallet share on individual customers.

 

I've had a few people return for the same events multiple years in a  row. I each case the number of feedback (proxy for transactions) those people had between stays had been growing year over year.

 

So as new user growth slows they will need to take wallet share on existing users to maintain growth rate, which I think they can do even without adding experiences, restaurants, etc.

[scorpioncapital]

Probably because tourists tend to not come back to the same place , at least immediately. Then it can be awkward to WhatsApp back after a long time. But I'm thinking of a different market, more medium to long term rentals where relationship is formed. Very unlikely I'd use Airbnb for future reference booking in that case... however the place may not be available which is a risk without long term rentals. For competition with Expedia or booking it is quite good although I note the other two are showing full condos too now, and sometimes at the same price.

 

[Jurgis]

https://www.nytimes.com/2019/02/23/nyregion/airbnb-nyc-law.html

[LounginMKL]

My 2 cents

 

Valuation

Last round has the valuation @ $31B in 2016. I would assume the IPO price will be materially higher, barring any change in the market.

 

VRBO vs Airbnb

I've been a short-term rental host for a few years, renting out a 5 BR place. My impression is that VRBO caters to vacation home crowd- large parties (families with 8-10 ppl) from Middle America. Airbnb draws younger parties (friends with 8-10ppl) from the Costal States, along with some business parties.

 

User interface / experience- Airbnb is MUCH better than VRBO.

Booking- I drew 50% booking from VRBO and 50% from Airbnb.

When I was renting to smaller parties (2-4 ppl), I would find enough liquidity in Airbnb to just use it exclusively.

 

Btw, a good HBR article on platform strategy

https://hbr.org/2019/01/why-some-platforms-thrive-and-others-dont

[saltybit]

https://skift.com/2019/02/27/booking-and-airbnb-are-now-in-a-homesharing-dead-heat/