Airbnb Set to Crush Home Away, Eat Marriott’s Lunch, and Come Public at $10B+ Valuation

• Posted by Leigh Drogen on June 17th, 2013 at 9:08 pm
• Comments: 0

Last week we added 7 private companies to the Estimize database, including Airbnb (AIRB). You can read about it on the blog, or 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 macro economic 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.

Way back in March of 2011 I wrote a post here titled “NYC Rent Arbitrage” in which I first introduced Airbnb to readers of this blog. I also laid out a rent arbitrage scheme which I actually ended up executing on, to a small extent, after moving apartments and retaining my old one. I made $500 a month off my old apartment and basically had to do nothing, it was glorious. I recently gave up the apartment when the lease ran out.

But it was obvious at the time that Airbnb was going to be a massive company. Quoting myself here from the post:

“I will say right now, this company is going to be huge, I mean monstrous.  If you want to talk about disruptive technologies that impact real world things, this is ground zero.”

I don’t get em all right, but I nailed this one. Too bad they never opened up an investment round to schmucks like me.

So now it’s more than two years later and 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 comes public, eventually. 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 release 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 .

More important than the hockeystick growth curve of nights booked to our purposes here, is the accounting for the total number of nights booked per year from 2008 through 2012. 2012 is obviously a projection by them here, or a run rate so to speak, since they were only half way through at the time. I expect that number was probably even higher than they projected at the time given 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 # 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. And 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.

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