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Is Airbnb Worth $24 billion?

Has the company already outperformed the best in the hotel business?

18Jun

I recently saw a Tweet by Huffington Post contributor, Vala Afshar, which if I were to sum up in one sentence, was about how Uber, Facebook, Alibaba and Airbnb had risen to the top of their respective industries despite owning no ‘real-estate’.

Airbnb, now the highest valued accommodation provider in the world, began overtaking established names such as Hyatt Corp and Intercontinental at the start of 2015. Ahead of a $1 billion funding effort, Airbnb has been valued at $24 billion, putting it ahead of the Hilton group, which is valued at $21.8 billion.

The company, very much a byproduct of the sharing economy, has told its potential investors that it expects to bring in $900 million in revenue by the end of 2015, triple 2014’s figures. By 2020, Airbnb is projected to generate an impressive $10 billion in revenue. However, Airbnb expects to make a $150 million operation loss this year, a necessary blip in order to fuel future growth.

The biggest threat to Airbnb’s $24 billion valuation is that its global marketshare in the lodging industry will have to rise from 1% to 10%. With companies such as Priceline determined to defend its marketshare in the face of new entrants, and new housing legislation popping up in cities like Berlin, getting to 10% is clearly going to be no simple feat.

When you consider that Airbnb’s 1% of the market constitutes nearly 1 million listings, 10% would mean that it would need to have 10 million. Let’s not forget, the vast majority of Airbnb’s listings are short-term, which in the main are riskier than those done in the longer-term. Will Airbnb be able to attract nine-million more people to rent out their homes? The accommodation giant will have to provide concrete examples of ‘Airbnb businesses’, ones that earn its users a comfortable living, and hope that the financial lure is enough to entice people.

Addressing the situation in Berlin, Airbnb told its users that it was ‘working closely’ with the policymakers there in order to guarantee that the Sharing Economy, and Airbnb, can continue to thrive.

Despite this, Airbnb’s current growth rate of 90% is perhaps the single largest reason why it’s been valued so highly. Compared to other companies in the same field, Airbnb has grown the fastest - it’s also important to add that Airbnb is still very much in its infancy and should expect to grow further in the coming years.

Many travellers have yet to try Airbnb, something which may be due in part, to the relative immaturity of the Sharing Economy. Airbnb should therefore expect more bookings as society as a whole accepts sharing as a viable concept. This means that there’s a chance that the 90% figure could increase, causing its marketshare to increase quicker than expected.

At $24 billion, Airbnb’s valuation now surpasses Hyatt and the Marriot - even though both firms have substantial real-estate across the world. Its revenue forecast is ambitious, but with a growth rate of 90%, and many new places still left to explore, it would be a brave man who bets against Brian Chesky, and Airbnb being the dominant accommodation provider in the era of the sharing economy.

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