Last week we added 7 private companies to the Estimize database, including Airbnb (AIRB). You can read about it in this post, or view the great coverage from Erin Griffith at Pando Daily.
I wanted to take some time today to run through my Airbnb model and lay out my thesis.
This is already an extremely important company to the surging collaborative consumption ecosystem. It’s a company that will in many ways transform how we look at access to “space”, whether we own it, rent it, or just want to use it for a short amount of time. From a macroeconomic point of view, the most important aspect of Airbnb is that it helps to increase the rate of capacity utilization of hugely valuable and expensive assets: your homes.
Over the last two years, Airbnb has become a monster company. It’s now time to start thinking about how they are impacting their competitors which trade publicly, as well as what this company looks like when it eventually comes public. There’s no way it’s getting bought out now (it’s too big), and they are on a war path to change the hospitality industry for the better.
So let’s start with what we do know about the fundamentals of Airbnb. About a year ago the company released the infographic below which outlines how many nights Airbnb users have booked on the site cumulatively, as well as the yearly rate at which they booked them .
For our purposes here, it’s more important to account for the total number of nights booked per year from 2008 to 2012 than the overall honeystick growth curve of nights booked. 2012 is obviously a projection by them here, or a run rate so to speak, since they were only halfway through at the time. I expect that number was probably even higher than they projected at the time given that their growth curve was parabolic.
We also know that Airbnb makes about 11.25% of the listing price on each night booked. That comes from fees charged to both the renter and the guest. We’re not quite certain, but projections of the average cost of a night booked on Airbnb is around $100.
So the math here is pretty easy. Since Airbnb doesn’t generate any other substantial revenue, we can say that the number of nights booked times average cost per night times 11.25% equals gross revs.
I’ve done the math here on the table below. This table also has my assumptions for nights booked and revenue growth in 2013 – 2015.
On Estimize I’ve posted my quarterly revenue projections below against the Estimize consensus compiled by the rest of the community. You can enter yours by clicking through on the charts.
So let’s say I’m right about Airbnb’s growth. Let’s say that in 2014 they do $1.35B in revenue. What’s the company worth in an IPO?
Well, we have a pretty good comp from a public company that operates in a very similar manner, though it’s growing at a far slower rate. HomeAway (AWAY) is growing revenues at about 25% YOY, and is getting shelacked by Airbnb. What I want to point out is the price to sales multiple that HomeAway is trading at.
HomeAway trades at about 9X TTM revenus. Let’s say that at the end of 2014 Airbnb comes public at 9X revenues. That would put the market cap at about $12.2B. In my opinion, this is a conservative estimate regarding the multiple that Airbnb will trade at given its projected growth rate. There are many other avenues that they can monetize from. At 9X revenues, I’m a buyer of an IPO.
Understanding what the expectations are for Airbnb is extremely important if you are trading HomeAway or any of the other lodging names like Marriott (MAR), Starwood (HOT), or Hyatt (H).
It’s going to be interesting to see the estimates for these private companies up on Estimize pre-IPO and what it does to their valuations.
I’m bullish on Airbnb.