It was a great summer for Airbnb. Well, sort of. Users flocked into the web service to host people or to be hosted by others in numbers never seen before. Investors poured great amounts of money into the tech corporation and brought Airbnb to a valuation second only to Uber.
Last June Airbnb sought to take a giant loan of $1B from J.P Morgan Chase, and three months later it had already raised $555 million more from Google and Crossover Capital, a strange number that seems as if it were taken from a Vegas slot machine. The giant round, it seems, is just a part of a larger $850M round that is still rolling out, and according to Fortune, gives Airbnb a $30B valuation. So in total, Airbnb ended up with almost $2 billion in debt and equity this summer. Not bad at all.
The trend made us worry about the future of Airbnb. We googled a bit just to look at what had happened in June that brought this decrease and discovered that it was probably the war waged over Airbnb by the City of New York. It was in June that New York had passed a bill banning short-term rentals of entire homes on Airbnb, a decision that had marked the debut of a legal battle between the two entities.
But then, we realized, tourism is a seasonal business just like sports, education, or retail. It has ups and downs and they all have something to do with holidays and semesters.
What we learned is that mid-November is generally a bad time of year for Airbnb, and that 2016 has been an overall good year for Airbnb. In fact, you can see the increase in searching for Airbnb since 2013. The lowest point in each year is in about the same as the highest point in the previous year. Those of you with a good eye will be able to see the tiny surge of holidays season towards the end. These findings are very good news for Airbnb.
SimilarWeb, a service that monitors traffic all over the web, also assured us that the decline in the hospitality service’s traffic hadn’t happened this June but at the end of August, a trend expected on a yearly basis, caused by the end of vacation season, most probably unrelated to the NYC crisis.
Risks and Opportunities
So, is Airbnb is heading into times of low tides? It’s pretty hard to imagine, as the company just launched it’s biggest strategic venture so far. Airbnb now wishes to challenge other giants, such as Tripadvisor, with a new suite of services for the attraction-hungry tourists. With Airbnb, they can get now a list of recommended restaurants, museums or historical sites, and a curated bank of guided tours. In addition, Airbnb also helps to connect Airbnb users, allowing them to enjoy their Airbnb experiences together.
As demonstrated here, you can even see that recently Airbnb has been preparing itself for a more complex modus operandi with a growth of 4% in engineering power, polishing the company’s servers to absorb a greater scale of users, places, and services.
Financially, things are also going very well. Airbnb’s revenue soared 89% in July 2016 relative to the same time last year, according to Slice, a company that gathers its data from e-receipts. After Airbnb reported in June 2015 that it was on the track to hit $900 million in revenue by the end of 2015, it’s reasonable to assume that it is making more than $1.6 billion in revenue now.
Airbnb grew more popular than other online travel services as demonstrated by the graph below. It surpassed Booking.com and Priceline a long time ago, and only recently has it surpassed Expedia and TripAdvisor as well. One explanation to that is the fact that Airbnb is cheaper than hotels: A night at Airbnb costs about 26% less than an average hotel.
The inventory of listings of home owners and potential guests in the Airbnb database also keeps growing, by an annual rate of 153%. Bookings also grew 45% in the first quarter of 2016, compared to 2015.
But besides growth and opportunities, Airbnb suffers from few risks.
- Airbnb reported a net loss of more than $100 million because of their recent expansions. The company is not expected to generate profitable revenue in the next few years.
- As it is expanding into new markets, Airbnb is running into regulatory issues. Airbnb sued the City of San Francisco for passing few regulations that required them to raise fees and fine unregistered hosts. Airbnb is also dealing with a lawsuit against the City of New York, after the city decided to fine anyone who uses Airbnb to rent a whole apartment for fewer than 30 days. In addition, tax authorities around the world are raiding homes of Airbnb hosts, demanding them to pay state and municipal taxes. That leads to higher prices per night, which in some cases were equal to a night at a hotel.
- Airbnb suffers from bad reputation after the press ran stories of damaged apartments, neighborhoods totally changing their character, and users being harassed after using Airbnb. Some hosts had decided to raise prices and to take more money for cleaning in order to deal with messy guests, driving the prices even higher.
So How Much Is Airbnb Worth?
Zirra, a startup that has developed AI and machine learning technology to analyze the private tech market values Airbnb at $14B, about half of their rumored valuation. The exit valuation in case of an IPO or an acquisition rises to $23B. Zirra estimates with a probability of 60-70% that Airbnb will exit, probably with an IPO, in the next 2-3 years. Click here to read Zirra’s brief and insightful analysis on Airbnb.