Airbnb Said to Pursue Valuation Above $10 Billion in New Fund-Raising Round(dealbook.nytimes.com) |
Airbnb Said to Pursue Valuation Above $10 Billion in New Fund-Raising Round(dealbook.nytimes.com) |
Though they are planning to launch additional services [2] @aaronapple below (above?) is right... regulatory changes are on the way.
Right now they're violating the law, don't collect or pay local taxes unlike real hotels, don't bother with ensuring that local rules and regulations are followed.
This will (and should) change soon. Hiding behind the people who rent out their spaces who are "supposed to pay local taxes" won't hold. Customer databases will need to be released to the IRS or local taxes withheld (which [2] indicates they're working on already).
Once they are forced to play on a level playing field, their rates won't be as competitive and their service not as popular.
[1] http://qz.com/190432/airbnb-doesnt-even-own-a-bed-but-its-ba...
[2] http://www.fastcompany.com/3027107/punk-meet-rock-airbnb-bri...
This is a common misconception on HN. People with technical backgrounds love structural explanations for things. You see a similar phenomenon in the number of people who believe that the shape of an airfoil is what keeps a plane up. But in fact the main thing driving Airbnb's growth is not price, but that guests are looking for authentic experiences. Price helps, just as lift generated by airfoil shapes does, but it's not what has made Airbnb big.
Clarification re: popularity, I think we can agree that AirBnB lives and dies with its inventory. If cities/IRS were to crack down on the legal and tax aspects, inventory would significantly reduce.
One concerted enforcement action, eg enforcing disclosure of all who rent rooms to the IRS, or requiring disclosure of apt. addresses to landlords, and a very large part of the inventory will drop out overnight.
Do you think that as the services that Airbnb provides gets more standardized, the Airbnb experience will inevitably get more transactional like traditional hotels?
If so, do you think that their core user base is likely to shift towards more traditional traveler?
Sure, certainly an important thing to consider if you take the pessimistic view. On the very optimistic side, consider the possibility that AirBnB makes hotels almost entirely obsolete (it is definitely putting pressure on them). Hotels are expensive and cookie-cutter. While in some ways predictable is their advantage, expensive is not, and cookie-cutter is boring. AirBnB offers location (location location), comfort (home away from home), privacy (if you want it), and novelty (every trip is different). Major pluses in my book.
> Once they are forced to play on a level playing field,
What happens if they aren't, ever? What happens if cities all over the place actually accommodate them? Unlikely, sure--but it's easy to be a naysayer on the internet. It's more likely what will happen to them is what is happening to Uber et al. Some places accommodate sycophantically (SF), some places go the opposite direction (Seattle). And anywhere that accomodates, AirBnB stands to take a huge chunk out of the existing hotel biz.
There are smart people working on these valuations, on both sides. AirBnB has real, valuable network effects that need to be considered. I don't imagine to be able to gauge this one accurately purely based on "c'mon, thats so much money!!". I'm honestly more a pessimist on AirBnB. But I've been a resolute pessimist before and gotten burned badly (e.g. stock market 2013, anyone?)
I don't think you've done the market segmentation here... you're assuming that the majority of the market is similar to you.
Business travelers want reliability and predictability, and the companies that they work for want to negotiate rates in exchange for being preferred vendors.
Travel agencies need the reliability and predictability.
Anyone organizing for a larger group (weddings, sports teams, church trips, conferences, etc.) can't deal with a smattering of different housing providers.
A lot of people just don't want the obligations that come with the AirBnB experience... if you've got a family with three young kids that tear the crap out of things and make messes, a hotel room is a better bet.
Some are, eg big franchises like La Quinta, but many are not.
The pressure they put on them is because they skirt the laws and play by different rules, yet those who use AirBnB look just at the rates. What's more, the low rates are the direct result of them skirting the rules and expose those who rent their rooms to fines, taxes or worse.
There's also a complete lack of enforcement/adherence to regulations that ensure safety, cleanliness, etc.
They don't even protect the rights of the home owner (eg there are special rules in NYC for stays exceeding 21 days, exceed that, and the "short-term" vacationer becomes a tenant with associated rights, ie try to get them out even if they do not pay "the rent").
By the way, the hotel industry is lobbying big-time to address these and other issues. I doubt they'll roll over anytime soon.
"At $10bn, Airbnb would be one of the world’s most valuable startups and worth more than than Hyatt Hotels ($8.3bn) or Wyndham Worldwide ($9.4bn)."
http://www.theguardian.com/technology/2014/mar/20/airbnb-fun...
not crazy
1. go look at Hyatt's financials. Back in 2010 fiscal year Hyatt only generated $66M of net income. Why? Because hotels generally have high operating leverage (i.e. high fixed costs) and low margins, so small downturns in demand for rooms can have a large impact on profits. And frankly, AirBnB is helping depress demand for hotel rooms.
2. now think about AirBnB's business. They take 3% of every booking and they probably have low incremental costs (just additional server capacity).
The article below says they booked 12-15M in rooms in 2012. At an average of $100/room night (probably conservative) .. that's ~$1B in bookings with $30M going to AirBnB.
http://www.businessinsider.com/airbnb-billion-revenues-2013-...
We know AirBnB has grown rapidly ... and in the article they say they think they can serve 100 million in bookings per year ... which would equate to revenue of $300M. You can start to see how AirBnB could in fact produce as much profit as Hyatt without owning hundreds of properties.
Finally, don't bet against companies that combine economies of scale and customer captivity. I'd say that AirBnB has customer captivity because of the difficultly of establishing 'trust/credibility'. Once a user has established that credibility at one site I think they're fairly captive.
Anyway, time will tell. It's going to be fascinating to watch.
And of course the elephant in the room, how many will AirBnB serve if regulations are enforced? Also an open question of will AirBnB be commoditized and have its value spread across dozens, if not hundreds or thousands, of competitors across the globe?
The idea of renting your house can be transportable to many other non-rentable items too. $10 billion is reasonable if in 3 years there's a 80% chance that it's a $2.5 billion company, and a 20% chance that it's a $75 billion company.
Home owners who reside in the home are allowed to sublet a room, but not for less than 30 days (ie most are illegal).
If the owner does not reside in the home, it's also illegal and/or zoning laws come into play.
Most leases do not allow subletting of rental apartments without approval by the owner or they may face (and have faced) eviction (ie under 30 days, most are illegal as well).
By the way, it's not 'just' hotel taxes/fees. Income taxes as well.
In NYC, hotel taxes in NYC are about 15%, plus there are all kinds of rules an regulations that hotels need to adhere to (safety, maximum stay of 21 days, etc etc)
Edit: here are the official rules - http://ny.curbed.com/archives/2013/03/25/an_introduction_to_...
Not 100%. I would guess about 75-85% are illegal based on the small % of listings I've seen for owner-occupied AirBnB listings (which are usually okay).
Also, there's no need for "post-yes" for AirBnB. They already have hotel taxes and regulations (which cover everything from major chain hotels to tiny bread-and-breakfasts).
Prohibiting any rentals between one night and a month is the result of lobbying, just like automobile concessions: either Y Combinator participants considers that laws can be changed to adapt to new business models, and that the current one (in the US) are the result of business pressures or they are not. Yes, hotels are incredibly less dodgy than car salesmen -- but still ‘illegal’ shouldn’t have a different meaning on similar debate.
Taxi rules are not just about signaling trustworthy transporters to users.
As for people doubting their valuation and comparing it to hotels; keep in mind that hotels have no way to scale the way AirBnB does, nor can hotels cater to niche geographic areas the way AirBnB does. It is not a stretch to see AirBnB becoming the defacto start when searching for a place to stay and if that happens, hotels may find themselves subordinate to AirBnB.
if they were doing something wrong in the eyes of the public, that's another case
Being a publicly traded company sucks. I imagine a lot of this financing will go to cash out early investors, providing liquidity for those who need it, while still keeping the company private.
It's a common strategy with tech companies. (See Square, Uber, Dropbox, Twitter, etc.) The first major instance I remember was the $300MM DST/Yuri investment in Facebook in 2009.
Also, you can't short a private company, at least in the usual ways.
See http://www.fastcompany.com/3027107/punk-meet-rock-airbnb-bri...
By the way, bad stuff happens all the time. I assume a lot if this doesn't make it into the press as they pay people off.
Just last week: http://mashable.com/2014/03/17/airbnb-freak-fest/
http://www.latimes.com/business/technology/la-fi-tn-airbnb-x...
It's funny because AirBnB was set-up (and I still see them mainly) as a convenient solution for such gatherings, when hotels are all booked. They are the reliable reference in that case.
Granted, conferences and weddings in the US have always stricken me as operated by control-freaks who can’t accept that people able to run team of 15 scientists, or parents with three children can find a way to book a room by themselves.
Is the ToS really ironclad in limiting their liability?
Or are they just not big enough yet that they can be counted on to settle the case? After all, class-action lawyers rarely want to go to trial. They're much happier with a settlement that leaves them with a rich payday, but has only modest benefits for the putative class members. (A $10 coupon for your next Airbnb stay!)
http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?F...
Those are no doubt a factor in Hyatt's valuation.
Initially AirBNB had the advantage that it allowed for one-time postings of a property (as HomeAway would charge annually to post a property). But HomeAway has recently added per-booking fee if you are only posting once or twice a year.
At this point, I feel like AirBNB doesn't offer anything HomeAway already does. So unless AirBNB has some amazing growth potential or revenue, I don't see $10bn being likely.
Do note, from the Hyatt 2012 10-K "As of December 31, 2012, our worldwide portfolio consisted of 500 properties (135,144 rooms and units)."
With availability of 300-365 nights a year, unlike AirBnB, this amounts to more than 40-49MM room-nights they can sell. Occupancy rates varies of course, but even at 70% average, that's a whole bunch more people than AirBnB.
#1 - Look at 2012/2011 [1] - "As of December 31, 2012, our worldwide portfolio consisted of 500 properties (135,144 rooms and units)".
Property has value, even without income. AirBnB has no such thing.
"[...]We primarily derive our revenues from hotel operations, management and franchise fees, other revenues from managed properties and sales of vacation ownership properties. For the years ended December 31, 2012 and 2011, revenues totaled $3.9 billion and $3.7 billion, respectively, net income attributable to Hyatt Hotels Corporation totaled $88 million and $113 million, respectively, and Adjusted EBITDA totaled $606 million and $538 million, respectively.[...]"
[1] Source: - http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9M...
#2 - Your $30MM ($300MM) is before taxes, before expenses, before costs of expansion (servers, but also support, legal, etc etc) to get to the $300MM, and based on them not paying taxes, not adhering to local laws, etc etc.
In short: I think it's fair to state that the $10BB valuation is rather 'bubblelicious'.
yes I'm aware of that. In my OP I was going to also say
"at $300M with a 20% net income margin (which would be one of the higher net income margins but not unheard of) AirBnB would be producing $60M of profit." but I figured most people would be able to infer that.
Anyway, think about it this way. TPG is leading the deal right? TPG is one of the top 5 PE firms in the country. While it's possible TPG is making crazy investments, I think the best base case assumption is the TPG is not making crazy investments. I mean these are seriously smart guys with a good track record.
So if we start from the position that TPG is sane, then we ask ourselves, how are sane people getting to a $10B valuation. And I think I gave the outline of how sane people might be looking at it and arriving at a $10B valuation.
Plus I'm old enough to remember when people thought it was crazy that Amazon was valued at more than Barnes & Noble.
Airbnb has a website. The entry barrier to competition is very low. They are not unique at all.