Airbnb reportedly raising $1B at $24B valuation

http://www.businessinsider.com/airbnb-reportedly-raising-1-billion-at-24-billion-valuation-2015-6?op=1

by kevin • 11 years ago

84 100 11 years ago

acconrad• 11 years ago

That's great but seems - wow crazy. Why does one need that much money that late (not a rhetorical question, I've only ever been at Pre-B series startups)?

I've already seen Airbnb ads on TV, and it's not like they're a hardware company or some place like Zipcar where they need the capital to buy more machinery or equipment, so what is this really going towards? They're still operating at a loss, so how is this going to get them further out of the red, unless they expect to be operating in the red for a while?

Another tangential question I have is - where does YC fit now for startups? We're seeing all of these billion "Unicorn" companies coming up, and YC has grown from a handful of companies in a class to over 100 - can the next YC class really expect to earn the same esteem as the older ones? Is YC incrementally losing it's value to startups with every class that starts (and grows)?

pbreit5• 11 years ago

Truth: best to raise when you can, not when you need.

kzhahou• 11 years ago

Does that scale into the billions, though?

patio113• 11 years ago

Is YC incrementally losing it's value to startups with every class that starts (and grows)?

Would you rather have the deal that Airbnb got from YC or the deal that the next three kids with a gleam in their eye will get from YC?

Airbnb vintage YC deal: Here's $15k for 7% of your company. Also, welcome to the club! Nobody has heard of us, but we're still a club.

Next YC deal: Here's $120k for 7% of your company. Also, welcome to the club! People have heard of us! You now have social permission to tap the resources of several hundred companies, some of which are worth billions of dollars. You're a mortal lock on raising a round subsequent to Demo Day at a valuation which will make angels weep while happily investing. You have preferential access to every connection which matters in Silicon Valley, including top-tier VC firms, a pool of interested employees, potential acquirers, and vendors who you need good relations with. Comes with one free TechCrunch article, too!

7Figures2Commas4• 11 years ago

Next YC deal: Here's $120k for 7% of your company. Also, welcome to the club! People have heard of us! You now have social permission to tap the resources of several hundred companies, some of which are worth billions of dollars. You're a mortal lock on raising a round subsequent to Demo Day at a valuation which will make angels weep while happily investing. You have preferential access to every connection which matters in Silicon Valley, including top-tier VC firms, a pool of interested employees, potential acquirers, and vendors who you need good relations with. Comes with one free TechCrunch article, too!

Sigh.

YC has a lot of cachet and no doubt opens certain doors, but founders should never drink too much Kool-Aid. For all of the wonderful things YC provides, the success of YC startups basically follows the same power law distribution you see across the Valley and no founder should delude himself or herself that being part of a "club" guarantees success in today's market.

Just look at the experience of the founder of Dating Ring (YC Winter 2014)[1]:

And so we focused on growth. For a year, my cofounders and I worked 100-hour weeks, all major holidays and weekends. We gave up social lives and had one of the most impressive graphs at the crazy 78-company Demo Day YC hosted – 60% MoM revenue growth, with 25k in revenue for March.

We had more press and name recognition than any other company there, and my pitch was named as one of the top 8 by TechCrunch.

Out of the 500 investors there, only one invested.

[1] http://advice.datingring.com/fundraising-while-female/

mattmaroon• 11 years ago

To be fair, most of those benefits were there early on. Everyone in the industry definitely knew about YC already when I started (S07). All major angels/VCs were reachable through the network already. Valuations were good (for back then).

But the network effect does make the club worth more.

timr• 11 years ago

"You're a mortal lock on raising a round subsequent to Demo Day at a valuation which will make angels weep while happily investing."

While I concede your greater point, you're really overstating this part of it.

larrys3• 11 years ago

Competition to get "the next YC" deal is much greater now than it was back when "nobody has heard of us but we're still a club" but did provide value. [1]

If you don't get into the club and haven't passed the filter (which almost certainly has become more difficult) then you don't have anything.

[1] Also the resources are most certainly stretched much thinner than they were "back then". Even though there are more resources to tap.

nostrademons4• 11 years ago

I assume that the money is going to Airbnb ads on TV (and on airline seatbacks, and on Facebook, and everywhere else). When you have a model that works and is proven profitable on a unit basis, it makes sense to cram as much money as possible into distribution channels to make sure that it gets in front of everyone.

untog• 11 years ago

When you have a model that works and is proven profitable on a unit basis, it makes sense

...to IPO. In the normal world.

hlmencken• 11 years ago

The ability for private equity to support businesses before they go public has become absurd.

anigbrowl• 11 years ago

Agreed, and it's bad for would-be competitors because they can't identify weaknesses in incumbents, and can't argue for their alternative being better as there are no data in the public sphere, not to mention leaving small retail investors out in the cold.

PS Great username.

paganel• 11 years ago

This is a bubble waiting to burst. There's too much money being invested with no real and direct oversight, and that's when capital misallocation happens.

ThomPete7• 11 years ago

If airbnb can't become a successfully profitable company based on their current revenue and trend, there is a serious problem with the VC model. It's like watching the sub-prime loans just keep on going because no one have any understanding of what is going on.

In my mind this is part of an absolutely absurd game where a little groups of tightly knitted VCs leech onto each others successful investments to pump up some crazy valuations which they can then use to make even bigger.

There will be a correction to this sooner or later and it's going to be affecting alle the other already undervalued tech companies out there.

spullara• 11 years ago

Would it be imprudent to point out that the late stage rounds aren't being done by VCs?

ThomPete7• 11 years ago

No but that doesn't change the fact that its the same people involved in that small ecosystem.

paul• 11 years ago

When choosing between immediate profitability or faster growth, the smart decision is typically faster growth, as that leads to much greater profits down the road.

Remember when the HN crowd thought that Facebook could never be profitable because they were making the same tradeoff?

ThomPete7• 11 years ago

Facebook is one example. Not exactly enough to establish a new approach to business making.

tvladeck• 11 years ago

When a company is growing, it's not the p&l that matters. It's the contribution margin (CM) (revenue less _all_ variable costs - including those "below the line", like SG&A, that scale with your customer base) that matters. It can make financial sense to spend tons of cash (all you generate and then some through outside financing), as long as you're spending less to acquire and keep customers than they'll spend with you. It can be hard to tell, even for a good investor, if a company's true CM is positive, and my guess is that many fast growing companies have zero or negative CM. I'd guess that Airbnb's is quite positive.

ThomPete7• 11 years ago

Sure but that doesn't change the fact that they don't need the money, they could do it with their own current revenue and still be in the lead.

This to me looks more like a for investors to milk the value of an AirBnB that is doing quite well already and doesn't need those money.

rokhayakebe3• 11 years ago

Consider a few things before calling the market crazy:

Total revenue to date: around $2B.

Revenue in millions Y by Y since 2011: 40,180,250,450,850 - See the growth?

Total money spent to reach nearly $2B in aggregate revenue: $2.5B

We do not know their cost of customer acquisition. We do not know their marketing spend. We do not know the median lifetime value of customers. We are not sure what other options users think/know they have.

For a business pulling in $1B in yearly revenue, raising $1B is not necessarily significant.

benatkin2• 11 years ago

Does that revenue figure include the percent paid to the hosts with each booking?

adventured5• 11 years ago

Their take is nowhere near $1 billion in annual revenue.

It would imply they're taking a thousand dollars in sales or so per listing per year at this point. That would more than require every listing be sold out at all times.

rokhayakebe3• 11 years ago

Revenue, not bookings. These numbers (if correct) would represent 15% of bookings.

joelrunyon2• 11 years ago

This is the funny math that got Groupon in trouble when it IPO'd. You can't count revenue as the main metric. You have to look at costs & profits.

Any bootstrapped business will tell you this - but somehow everyone forgets it when it's VC money.

morgante2• 11 years ago

P&L is not a useful metric for growing startups.

If the lifetime value of an Airbnb customer exceeds their marginal cost (including COA), Airbnb should buy customers all day long.

I strongly suspect Airbnb's marginal returns are fantastic. Their model seems highly profitable on a unit basis.

nharada• 11 years ago

Why does Airbnb feel the need to raise such a large funding round instead of going for an IPO?

adventured5• 11 years ago

Because much like Twitter's scenario, they're not worth nearly as much in the public market as they are today in the private market. Their numbers today won't support that hyper valuation. So they'd have a celebrated IPO, raise $2 billion or so, and their stock would promptly crater as the first few quarterly results rolled in.

The public market is going to look at HomeAway's $3 billion valuation and $446 million in sales, and wonder why they're paying 8 or 10 times more for Airbnb, when the actual financial results are far less.

They also can raise this billion at a tiny dilution, while not acquiring the intense scrutiny that goes with being public. Twitter for example has been under a challenging microscope since they went public. It's painful to flesh out your business model on the front page of the New York Times.

bane2• 11 years ago

From a conversation on just this topic a day ago https://news.ycombinator.com/item?id=9728648

utnick• 11 years ago

For people questioning the valuation,

There is already a public company that is very similar to airbnb called Homeaway. They are profitable with a 3 billion dollar market cap. It doesn't seem far fetched to me to say airbnb is an order of magnitude more valuable than homeaway based on number of listings and mindshare I see online.

adventured5• 11 years ago

How about Expedia then:

$5.7 billion in sales. $400 million profit. Solid, consistent growth. $15 billion market cap.

Airbnb might achieve those metrics - ten years from now.

Or, going on the order of magnitude premise, it implies Airbnb is worth half as much as Priceline.com:

$8.4 billion in sales. $2.4 billion profit.

This is a fantasy valuation for Airbnb, that is pulling forward returns from far into the future. Airbnb seems to have an excellent business, and they may grow into that valuation one day - that day is not nearby.

lifeisstillgood5• 11 years ago

Sorry to be picky but pulling into a current valuation all the future profits is the point of a valuation. The value of a company stock today is all of expected returns from stock ownership (ie dividends and capital) for the life of the company. If not then I would but the stock from you and just wait for it to survive longer than the timeline you valued it at.

But airbnb has a long way to go to be Expedia / Priceline size. Mostly it needs to stop relying on 75% borderline illegal listings !

ed_blackburn• 11 years ago

That's some runway. I'd love to know what that $1B goes on for a business that produces software and hosts it on commodity servers? Acquisitions? World wide advertising campaign? Liquidity for original investors?

A year ago airbnb was a site I'd heard of because of HN. Now friends all over the UK are familiar and use it. Phenomenal growth, off the back of such a simple idea.

Kudos for executing it!

dopamean2• 11 years ago

It might not be that much of a runway. I'm not sure how many employees Uber has but Crunchbase says between 1k and 5k. If that is close to the top estimate and their cost per employee is near 200k then a billion dollars may end up being less than a year of runway when you factor in marketing costs and anything else.

buster2• 11 years ago

$1B seems crazy and i am wondering why a website (more or less) could be evaluated at $24B. But i love AirBnB and i hope they disrupt all the tourism business. AirBnB is hopefully the future of travel.

roguas• 11 years ago

Website is not evaluated. Business they make using that particular website is. There is a difference... while making airbnb website can take you 3 months with a good team of devs... building business of this magnitude will take years

buster2• 11 years ago

Of course, i know that. Also they do a lot in every country, they advertise, they help people, but still, they don't produce goods. They have a lot of customers.But they are still "just a website" after all.

andy_ppp2• 11 years ago

It's weird that a web business with an actual revenue stream gets such a lot of flack for a high valuation. They aren't Facebook or Instagram, they are a monopoly and will make stacks of cash. But does make me think there's a market big enough for a few smaller players here...

dylanjermiah• 11 years ago

They aren't Facebook or Instagram,

Facebook is different. Facebook actually had/has a ton of revenue.

they are a monopoly and will make stacks of cash

Airbnb is not a monopoly, there is a lot of competition for space.

ThomPete7• 11 years ago

Plenty of competition in that market. I have used 3 different services. Airbnb does not benefit from network effects the same way that facebook does.

cylinder• 11 years ago

A monopoly, are you kidding?

andy_ppp2• 11 years ago

I disagree with the comments here; they are orders of magnitude bigger than their nearest competitor. And that difference will only get larger. I think Facebook will succeed through acquisitions in the future and you can think of facebook.com as not relevant for everyone under 20.

There is very rarely a reason to go elsewhere unless you want a hostel or hotel. AirBnB the brand is a virtual monopoly, I think even the founder virtually confirms as much in his How to start a startup talk... here is the text and a link.

Q: One more question, the question is, in this particular situation with Airbnb, a lot of people think it is not necessarily a technology company, but more of a marketing company.

Brian Chesky: Good question. I will answer the question with a story.

Alfred Lin: Let me preface that question with a series of questions. Do you today have propriety technology?

Brian Chesky: Yes.

Alfred Lin: Do you have a moat?

Brian Chesky: Yes

Alfred Lin: Do you have network effects?

Brian Chesky: Yes.

Alfred Lin: Do you have pricing power?

Brian Chesky: Yes

Alfred Lin: Do you have a good brand?

Brian Chesky: I think so .

Alfred Lin: Are you a monopoly?

Brian Chesky: I am not going to answer that one

https://clip.mn/video/yt-RfWgVWGEuGE

bcg12• 11 years ago

If by 2020 they expect to earn $3 billion a year... then it would take 8 years to get your money out at this valuation, correct? And that projection is 5 years away, they currently aren't profitable, and the $3 billion projection doesn't include taxes, interest, or depreciation.

I'm not saying this won't work out but on the face of it, those numbers don't seem great. Who is going to shell out $1 billion for that? I sure hope that institutions like pension funds etc aren't getting pulled into this because of repressed rates of return on "safe" fixed income investments, because this has the potential to end badly.

dopamean2• 11 years ago

Or they are hoping that the company will IPO one day and be worth 100+ billion in which case they will have quadrupled their money.

damoncali• 11 years ago

You have to look at the terms before making that judgement. It seems very unlikely that it's a straight equity deal.

You could imagine a preferred offering with a 1x liquidation preference and some modest return, for example. The details really matter here.

jgalt212• 11 years ago

Yes, that very well may be true, but you do have to consider the fact that they cannot go public, or it would be difficult to do so, at a price below $24B. So whatever "special treatment" late stage investors get, they do make it much hard for themselves to realize a successful IPO exit.

bane2• 11 years ago

No, you're thinking about this all wrong, the valuation is due to all the physical assets they own.

More seriously, these kinds of valuations send a powerful signal that physical property ownership should be viewed less and less as an asset to a company and more as a burden.

Since AirBnB shifts the property ownership over to their room network, shifts up and down in the short-term rental market hurts them and provides a buffer to AirBnB. Traditional hoteliers have to keep maintaining empty rooms in the event the industry picks back up, or build more rooms if the industry is at a high. On the flip-side, AirBnB can be sensitive to local regulations and property owners might simply decide to not have their place up for rent, making availability a slight risk.

To put this valuation into perspective, Marriott International has a Mkt Cap of $21.5B They're the 3rd largest hotel group on the planet and own something like 125,000 rooms.

Airbnb claims 1,000,000 listings, but owns none. Makes money only off of the service fees (6-12%) and credit card processing (3%).

Looked at another way, this valuation says to the hotel industry "having professional employees and facilities is eating into your bottom-line", because AirBnB simply doesn't have to assume those costs.

Prediction: regular hotel rooms will start showing up AirBnB within 5 years.

Airbnb reportedly raising $1B at $24B valuation

Related Stories