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As A Rare Profitable Unicorn, Airbnb Appears To Be Worth At Least $38 Billion

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Over the years, Airbnb has cemented its position as a poster child of the “sharing economy” along with Uber, thanks to its pioneering efforts in using technology to carve out a multi-billion dollar opportunity in the massive global hospitality industry. The company, which boasts nearly 5 million lodging options across 81,000 cities in the world, was reportedly valued at $31 billion during its last round of funding in March 2017. We estimate that Airbnb is worth at least $38 billion now, based on our interactive model for the company.

Airbnb’s Business Model At A Glance

Airbnb operates an accommodation marketplace that allows people to list their available living spaces to be leased or rented by users looking for short-term lodging. While Airbnb also allows users to book experiences related to tourism and make reservations at restaurants, these services currently form a negligible part of the company’s business model.

Airbnb allows bookings at listings in more than 81,000 cities across 191 countries – a scale that it was able to achieve over just a few years because of its role as just an intermediary (or broker) connecting people looking to rent out a living space, and those looking for a place to stay. As Airbnb does not require investment in any real estate - unlike many hotel companies such as Hyatt - its growth is purely dependent on the number of hosts and guests it can attract on its platform. The company makes money by charging the host as well as the guest a percentage of the booking cost as a service fee. Currently, the company charges hosts a service fee of 3% of the booking amount, while the service fee for guests ranges from 0-20% of the booking amount.

However, the biggest hurdle to Airbnb’s growth is restrictions imposed by legislative bodies, municipalities as well as communities on the use of lodgings in a particular locality for short-term rental purposes. Over recent years, though, Airbnb has done well to engage with a number of stakeholders to push regulations and rules which are aimed at making short-term renting easier.

A key factor that separates Airbnb from a bulk of the multi-billion dollar startups (“unicorns”) is that it is now cash flow positive, and has seen a positive EBITDA figure for the past two years. As many startups have fairly low upfront investment requirements, their business models can be easy to replicate with low barriers to entry. This leads to a long list of startups that compete with the first mover – forcing the companies to burn cash to capture a larger share of the market quickly. While ride-hailing pioneer Uber has yet to turn a profit despite its impressive growth worldwide, Airbnb is now cash flow positive and also has a sizable cash balance – putting it in an enviable financial position among the unicorns.

Understanding The Impact Of Key Drivers Of Airbnb’s Value

Our interactive model for Airbnb values the company based on our forecast for 4 core value drivers:

  • Number of Listings: This is the total number of listings on Airbnb at the end of a given year. The figure was 3.5 million at the end of 2016 and 4.2 million at the end of 2017. As Airbnb expands its footprint globally, and also attracts more hosts in existing cities, we expect this figure to cross 5.3 million by the end of 2018.
  • Average Guest Arrivals Per Listing: We arrive at this metric by dividing the total number of guest arrivals over a year by the number of listings at the end of the year. Airbnb has remained tight-lipped about the number of occupancy days across its listings over the years, because of which we rely on guest arrivals as the next best metric. The company witnessed 80 million guest arrivals in 2016, and we estimate a figure of 115 million for 2017. This works out to an increase in average guest arrivals per listing from under 23 in 2016 to 27 in 2017. We expect this figure to increase to 31 per listing in 2018 as more people worldwide explore options for short-term lodgings. Taken together with our forecast for 5.3 million listings by the end of this year, this works out to 5.3 x 31 = 164 million guest arrivals for 2018.

  • Average Rent Per Guest Arrival: This is the average rent received by a host on Airbnb per guest arrival, and increased from $157 in 2016 to almost $174 in 2017. The increase is most likely explained by an increase in average duration of stay by guests and a higher proportion of more expensive lodgings. We expect this trend to continue in 2018 (albeit at a slower rate), leading to an average rent figure of $185 for the year. Using the 164 million guest arrivals figure from above, this indicates gross rental income of ~$30.4 billion for full-year 2018 for all hosts on Airbnb

  • Airbnb’s Share of Rental Income: As we detailed above, Airbnb makes money by charging hosts and guests a percentage of the booking amount which is between 3-23% of the booking amount. Notably, available data for Airbnb’s actual revenues and our estimates for the Gross Rental Income above indicate that Airbnb’s share of the gross rental income was around 13.5% in 2016 and around 13% in 2017. Airbnb may ultimately have to lower the service fees to attract more hosts and guests on its platform – which could lower its overall share of the rental income to 12.5% going forward. Given our forecast for rental income of $30.4 billion this year, Airbnb’s revenues are likely to be around $3.8 billion.

As detailed in the charts above, we expect Airbnb to generate revenues of $3.8 billion in 2018. We apply a revenue multiple of 10 for Airbnb, based on the following:

  • Airbnb raised funding in 2016 and 2017 which valued the company at $30 billion and $31 billion, respectively. This represents a revenue multiple of 17.6 for 2016 and 11.8 in 2017. As the current high revenue growth rate of nearly 50% is clearly not sustainable in the long run, the multiple should ideally be adjusted lower with time.
  • Airbnb enjoys a considerably higher share of the global accommodation marketplace compared to its competitors. However, many of of its biggest competitors are owned by established online travel agencies (OTAs) who have the added benefit of cross-selling services to their clients. This is likely to weigh on Airbnb’s growth in the long run.
  • Airbnb also continues to face resistance to growth in the form of regulations against short-term renting of properties, and the manner in which the company handles this issue will play a huge role in the long-term success of its business model
  • At the same time, Airbnb is one of the rare unicorns that has been able to make money over recent years, even as it holds a strong cash balance that can be used to push growth in new as well as existing markets
  • Additionally, the company is likely to expand its offerings over coming years through acquisitions – allowing it to compete better with the more well-rounded OTAs
  • Taking all this into account, we believe that a revenue multiple of 10 is appropriate to value Airbnb for now.

As shown above, using a revenue multiple of 10 with Airbnb’s projected revenue figure of $3.8 billion for 2018 works out to a valuation of $38 billion for the company. However, we believe this figure marks the lower limit of Airbnb’s fair value, as our forecast for the number of listings and guest arrivals per listing are somewhat conservative (and it is a shorter-term forecast, not taking into account the long-term growth potential). You can see how changes in any of these key drivers can significantly change Airbnb’s valuation by making your own changes on our dashboard.

Editor's Note: A previous version of this note stated that Airbnb has listings in 18,000 cities. The note has been updated to reflect the actual number of 81,000.

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