HOW VALUABLE IS AIRBNB?

I published this post on December 2, 2019, and stand by it 100% with one exception: a one-year delay. In 2021, Airbnb stock will worth $138 billion dollars. The Airbnb IPO is set for December 10, 2020 under ticker symbol ABNB.

An Unjustifiably Brief History of Airbnb

Twelve years later, the anticipated Airbnb IPO is expected in 2020. But to understand the company, you must understand the history.

Airbnb started in August 2007 when two friends discovered that San Francisco rent control laws forced their rent so high as they subsidized the many tenants paying significantly below market rents they simply didn’t have enough money for the next payment to their landlord.

Brian and Joe, the original cofounders and designers, knew a design conference was coming to town and decided to create a website offering a safe space to sleep, breakfast included. This sleeping space was an inflatable mattress on their floor and the breakfast was Pop-Tarts.

Three guests paid them $80 each (interestingly this is the average per night rate on Airbnb) for three nights. Upon checkout the classic lightbulb idea descended just above Joe and Brian’s heads.

Later, Nate joined the startup as the technical and third co-founder.

The company was officially named in order to enter a prestigious accelerator program: AirBed & Breakfast. In 2009, this was shortened to Airbnb.

From there, they endured years of the traditional startup story without growth and requiring much innovation like selling cereal boxes to raise $30k to keep the lights on. (For a non-traditional startup story look at Instagram who started in 2010 and sold to Facebook in 2012 for $1 billion in cash).

Here’s a slightly longer and well-done early history of Airbnb.

In 2011, Airbnb was valued at $1 Billion.

I joined Airbnb in 2013.

My Airbnb Experience: Employee

The following is an edited excerpt from my best-selling book, Optimize YOUR Bnb.

In February 2013, I walked into the Airbnb offices at 99 Rhode Island, their third office in five years, for an interview in the finance department. As soon as I walked into the office, I knew I made a mistake: working for a traditional company for three years before I found Airbnb.

My first day at Airbnb was in July 2013. Two years later, I was fired. But, we’re getting ahead of ourselves. Let’s rewind to early 2013 when I first interviewed.

The employees were in jeans and shirts, shorts and sandals. Whizzing around on razor scooters, working in bean bag chairs, and smiling, I recall hearing Airbnb employees ask each other, “Want another beer?”

I asked for a bathroom break to calm myself and I walked into the most interesting bathroom (and bathroom sign ever).

Calm and collected on the outside, my mind was bursting. For the first four months of my previous job, my office consisted of a non-adjustable chair at a picnic table shared with six accountants in a janitor’s closet.

I was shocked a company office culture like Airbnb existed. In fact, only month’s prior I was complaining to my Dad about how the notion of company culture was dead. I was an auditor so I got to observe many different companies for weeks to months’ at a time. To me, they all seemed more or less homogenous and stale.

Airbnb was different and their culture was by design as I learned through the interview process. It was four days with 13 interviews including an off-site company happy hour.

Every Friday, Airbnb employees would have a happy hour either at the office or in the city. The office was in the South of Market district in San Francisco and most employees lived there or in the nearby districts, so most offsite happy hours were in those neighborhoods.

The happy hour I attended as part of my final interview was around the corner from my house in the northernmost part of San Francisco. A 3-minute walk. The stars were aligned. This was my calling. But, I was so nervous. I was born an introvert, but have spent my life learning how to interact, especially in group situations. I felt I was ready and confident.

Weeks later, I got the job.  And a pay raise, stock options, a desk, adjustable chair, free food, monthly massages, yoga classes, and bike tune-ups. Life was good. I would start in July 2013 in the new building at 888 Brannan Street.

Airbnb Valuation: $2.5 Billion

Airbnb still occupies this space though when I moved in it was only on the 3^rd floor.

Then, the kitchen opened on the 5^th floor.

Then, the 4^th floor opened with additional workspace. Expansion was rapid. At one point, there were rumors of a gym, but Brian Chesky, Airbnb CEO, Co-founder, and former bodybuilder, confirmed he denied these plans in a company-wide meeting.

Company culture was artfully crafted by Brian Chesky who often quotes Peter Thiel telling him ‘Don’t fuck up the company culture.’ Chesky took the advice to heart as evidenced by the founders being heavily involved in the interview process for the first five years of the company’s growth.

The office was open.

Zero employees, including the founders, had an office. Chesky’s desk rotated between departments every few months.

Looking back on it, the open office design provided an exciting company environment and culture, but low productivity.

When the 4^th floor opened, a new space called Belong Anywhere, the company slogan, was introduced where employees did not have an assigned desk. It didn’t work for engineers or finance who needed an assigned desk, but it did for many other departments.

You could reserve an Airbnb-inspired conference room. Airbnb later got sued by Parisian hosts who felt they should be compensated for their design in the Airbnb office.

Breakfast, lunch, and dinner were initially served by the kitchen staff on the third floor in a makeshift dining room that doubled as office space and space for company-wide meetings.

A monthly email went out to schedule a free 15-minute massage and people frantically stopped whatever they were doing to sign up as there was limited space. Similar process when the free bike tune-ups email came around. It seemed like a quarter of the company rode their bikes to work.

Airbnb had holiday parties like I’d never seen before. I got to bring a “date” and opted to bring one of my good friends so I could finally show off my new company.

Employees would dress up for Halloween and Christmas, often coordinating a team theme. Airbnb was a team. Every birthday was celebrated with all employees stopping what they were doing to share in cake.

One of my first weeks in the office, the entire department took a full day off for team building activities. I loved every minute of it. It seemed like I didn’t work more than a full day over the first month. But, this dissipated quickly.

My days were long from around 9am to 7pm. Some days I would stay until 8 or 9pm.

My coworkers would get in as early as 6am. I learned this the day I showed up at 730am to get additional work done before a vacation and seeing three co-workers already at their desks typing away.

We got 15 vacation days per year plus 10 days over Christmas, though, this was supposed to be a surprise and the powers that be would deliver the good news so late the prices for flights were sky-high.

Nevertheless, we were all still extremely grateful. All employees received $500 of Airbnb credit every quarter to use on these vacations.

I remember ordering packages to the office mailroom and having to spell out A-I-R-B-N-B when ordering by phone. Airbnb still sounded like gibberish to most people in 2014. Despite our growth rate and valuation, unaided awareness in early 2014 in the US was only at 6%.

Airbnb Valuation: $10 Billion

Proposition F, a ballot measure to limit Airbnb in San Francisco, in late 2014 helped to get the word out on Airbnb, at least locally, as many people even in San Francisco hadn’t even heard Airbnb.

Airbnb Valuation: $13 Billion

As Chesky said, Airbnb was a perfect target as we were in the middle of the tech scene (gentrification, tech bros, big busses driving through the small San Francisco streets to take employees to the Google offices) and real estate (tenants rights activists, rent control laws, sky-high rents, and evictions).

At one point, a protest made its way into the Airbnb HQ and employees looked down as people let up balloons with words blaming Airbnb for the city’s housing crisis. They didn’t know any better.

Two traditions actually strengthened as the company grew: food and company-wide meetings including happy hours. The food was always good but kept getting better.

The kitchen staff, full-time Airbnb employees, always outdid themselves with meals, desserts, and celebrations. We celebrated Thanksgiving at the office, Mother’s Day, and any other statutory holiday.

Airbnb did an outstanding job of communicating to their employees what was going on at the company.

On Tuesday mornings, we would have global company meetings that would update everyone on recent developments and features. On Friday, it would be just for the HQ and would end in a happy hour.

These Friday meetings would almost always include something extra. The office was dog-friendly and below the first ever Airbnb office dog runway competition.

Once a month, we would do Formal Friday where everyone would dress up in proper business clothes. Chesky would often lead these meetings. He was an entertaining public speaker.

I learned about his bodybuilding days and the infamous ‘pocket steak’ story in which he used to work as a movie theatre security guard and carried a cooked steak in a plastic bag in his pant pocket as he had to eat a serving of protein every few hours during these meetings.

It’s here also that I would learn of non-accounting terminology like P1, P2, and P3 – the different pages on the Airbnb website. P1 is the home page. P2 is the search results. P3 is the listing page where you could book.

You could always book a listing within three clicks which was inspired by the late Steve Jobs, one of Chesky’s idols, mimicking the amount of clicks before you could play a song on the iPod.

I loved the company and the team around me, but accounting just wasn’t something I ever remotely liked doing. I was never cut out to be an accountant.

I say I was on the right bus, just in the wrong seat.

I would get in trouble for not being in my desk enough. I would socialize as I got so much more enjoyment from that aspect of my job. I justified it by telling myself that the more I socialized, I was giving a face to the accounting department in the company.

Unlike other companies I had been a part of, the accounting department seemed well respected at Airbnb. There were a lot of heavy hitters, a lot of really smart people on that team. Even a famous person came for a visit!

Whenever anything else came up work-related, but not accounting related, I would volunteer. Airbnb hosted fireside chats with famous people. The most famous were Joe Montana and Marissa Mayor. I attended almost all the fireside chats.

I started a Toastmasters club which would give me an excuse to do something else and leave work early one day a week to facilitate meetings or give speeches.

I would routinely respond to emails asking for employee hosts to help with testing new features and experiments. At the first Airbnb Open in San Francisco in 2014, I volunteered my entire weekend there.

Internally, we had One Airbnb in which all employees were flown to HQ for a week to meet each other. We were supposed to get work done this week, but I would do the bare minimum, opting to socialize instead.

Airbnb had a basketball team. I joined. Joe Gebbia was also on the team. He’s pretty good at basketball. Quick with a good shot and solid defense.

Airbnb Valuation: $25.5 Billion

Around April 2015 during a Friday meeting a new employee in Local Operations, Brian Martinez, announced a program that would pay employees $500 for every host referral they brought in.

At the time, I didn’t think much of it until I had a brief chat with Chesky who said the winner would be announced and awarded a prize. This was the real incentive for me.

I was always looking for ways to be on stage and announced to the company as I knew it wouldn’t come from my accounting work. Over the next few weeks, I leveraged my contacts, created marketing material, and brought in 36 referrals.

Then, I was fired. It wasn’t a good fit, professionally.

Over the course of a few months and serious conversations, I knew my time was coming to an end at Airbnb unless I could do something drastic. I tried to change departments.

After some in-depth research into the different departments and sub-departments in Airbnb, I decided the only one I wanted to join was the Business Travel team in the Business Development department.

I made my case as persuasively as I could, but at the end of the day, the decision-makers couldn’t wrap their head around an accountant being good as a business developer.

I went on to a business development role at a local Airbnb property management company. I tripled their revenues the following year.

Anyways, a mentor in finance I deeply respect advised me that it’s not fair to Airbnb or me having me do accounting. My skills are better suited elsewhere.

It was a tough goodbye because I love Airbnb.

At the same time, I felt oddly relieved. It felt like a huge weight was lifted off my shoulders. I no longer have to do accounting. Now, I can find what I really want to do in life.

Plus, walking away with $15,000 in Airbnb credit due to the promotion eased the pain. I also purchased my employee stock options as I expected the Airbnb IPO to arrive in the coming years.

Second place finished with 12 referrals. Because of this and thanks to Brian Martinez, I was re-hired a week later as a contractor in a similar role.

Due to my performance with the promotion, I didn’t even have to interview. I was now a Host Ambassador. All the folks I told I was leaving kept seeing me around and they got very confused. I loved it.

I flourished in this new role. I was finally in the right seat.

Over the next 6 months, I would beat out everyone on the new team signing up the most Airbnb hosts, getting the highest conversion rate, and booking the most reservations.

I officially said goodbye to Airbnb in January 2016 as my contractor role dried up under the intense political pressure put on Airbnb by San Francisco.

Airbnb Stock Valuation: $30 Billion

The city the company was founded in hated them. Local tenant’s rights groups blamed Airbnb for evictions and ever-increasing rent. Hotel lobbies funded any opposition to Airbnb that made them appear as dangerous tax-avoiding revels.  They didn’t know any better.

My Airbnb Experience: Host

I started hosting 3 months after I started working at Airbnb. The guest was Nicholas, a doctor from Germany. I had three roommates at the time and I had to convince all three of them to do something crazy at the time. Let a stranger spend the night in your home.

It was taking too long. I needed them to see the light a lot quicker so I listed the space. By space I mean the available couch in our living room. Well, not long afterward, an attractive girl booked our couch at $35 for one night. I showed the roommates, all males, claiming I made an error in listing our couch, who quickly decided it’d be okay for her to spend the night.

She never came. She canceled. But that was enough to get the ball rolling.

Over the preceding years, we hosted hundreds of guests. We earned as much as $135 per night for the Dreamforce conference. Our average rate over the final few months was $100. To be honest I still can’t believe it.

My Airbnb Experience: Guest

The first time I interviewed with Airbnb, I had not been a guest nor a host. In fact, I had barely signed up for an account. My first guest experience was in Santa Barbara where I organized the housing for my friends to return for alumni weekend at the University of California, Santa Barbara.

I remember being frightened. The security deposit said $1,000 and Airbnb’s terms of service made it seem like the host can claim this easily.

I had too many friends over and it was definitely a party weekend. I spent about an hour cleaning the house prior to leaving. Thankfully the host left me a positive review!

Since then, I’ve been an Airbnb guest 1,000 times on 6 continents.

I’ve stayed for one day. I’ve stayed for one month.

I’ve stayed in the cheapest of accommodations. I’ve stayed in an Airbnb Plus.

I’ve had many 5-star experiences.

I’ve had one 4-star experience.

I’ve had one truly horrendous Airbnb guest experience when I left my only 2-star review. The host then decided to claim extra damages from me. I submitted my proof and that was denied. I then decided to claim extra money from her due to construction noise. That was approved.

I’ve even booked a fake Airbnb listing in Pereira, Colombia.

As part of this experience, I’ve become the best in the world at Airbnb.

My Experience: Airbnb Property Manager

After Airbnb, I started working for a local Airbnb property management company. I thrived in my new role. I rocked it! But, I was scared. I was an accountant transitioning to a totally different profession and making less than half of what I was at Airbnb.

But, I was happy! I felt like I was contributing like I was an integral part of the team.

I was! I hired employees, structured deals with laundromats, rebuilt the website, optimized the online listings, etc.

After one year of this, I was fired again. But this time it made no difference. I knew what I wanted to do.

I was going to start the best Airbnb property management company in the world. I started Belo: Airbnb Property Management. Simultaneously, or even a little early, I also started optimizing Airbnb listings.

I still remotely manage Airbnb listings under the same company but never more than five at at time as my focus is on helping more Airbnb hosts become successful and make more money.

My Experience: Airbnb Entrepreneur

The first Airbnb Listing Optimization I sold in June 2016 for $5. It took me about 45 minutes.

Since then I slowly upgraded the report and my website, added a social media presence with Instagram, YouTube, Facebook, and Twitter and wrote the uncontested best book for Airbnb hosts.

I help about 30,000 Airbnb hosts per month as visitors to my blog and my YouTube channel.

No one searches for ‘Airbnb listing optimization’. This idea is restricted to only the few Airbnb hosts who know something about business and want to improve. I’m hopeful that with the Airbnb IPO, it will also bring a lot of new interest in Airbnb SEO.

I have no secrets and have said that since day one. All of my material is out there for free. If you have the time to dedicate to learning my strategies, you can.

If you prefer to pay me to save you time, I offer packages from $50 to $800 as a one-time free.

Essentially, I help Airbnb hosts make more money. I do this by making their Airbnb listing’s rank higher in search.

In 2018, I introduced Elevate Host which sets the host up for success with their online listing and offline hosting abilities.

What is the Airbnb Stock Valuation?

Airbnb stock was listed on NASDAQ under the ticker symbol ABNB on December 10, 2020 at an initial valuation of $42 billion. As a reminder, this blog was originally written in December 2019 and comes with one caveat: a one-year delay due to coronavirus.

In early 2021, the Airbnb stock valuation as a public company has fluctuated from about $100B – $140B.

Airbnb will have a 2020 value of $131.6 billion. That’s $131,600,000,000. I’ll tell you why, but first I want to look at the question simplistically (ie without numbers and mathematics).

Airbnb has an incredibly high barrier to entry. This alone makes the company tremendously valuable. No one can come along and create an Airbnb. Those who have tried are fooling themselves into thinking they’re solving a problem that doesn’t exist.

• Noirbnb caters to travelers of color because they believe Airbnb is racist. Well, turns out Airbnb is not racist. Instead what’s happening is the media picking up each and every potentially racist interaction on the platform making the issue appear larger.
• Fairbnb assumes current laws are correct and efficient. Enough said there. Good luck to you.
• With the recent onslaught of news of hidden cameras in Airbnbs, I’m sure someone will try to capitalize on this non-opportunity.

The point is: Airbnb has a high barrier to entry due to the chicken and egg problem. For about 5 years, Airbnb struggled to attract both the guest demand and the host supply. Airbnb knows where the seller (host) is, but the buyer (guest) can be anywhere on Earth. This makes it incredibly hard to market your company.

Contrast that with Uber whose seller (driver) and buyer (passenger) are in the same city. If you want to create a competitor to Uber all you have to do is build a reliable app and market in the city or region of your choosing. In every country I’ve traveled to there is fierce competition.

Here is a list of some of Uber’s competition:

• Yandex in Russia and many eastern European countries
• Beat in Colombia
• Grab in Thailand, Vietnam, Philippines, and other eastern Asian countries
• Ola in India
• inDriver maybe Uber’s largest direct competitor
• GoViet in Vietnam
• Didi in China
• Many traditional taxi companies have even created their own app like Easy Taxi

Or maybe Uber has received such fierce competition because of the continual bad press they received largely due to their founder. In general Uber seems to be viewed as the evil big corporation preferring profits over people. This is bad for business. Lyft, Uber’s largest competitor in the United States and the reason for all ride-sharing apps today, is viewed as the friendly version of Uber and is preferred.

Contrast that with Airbnb’s cofounders and you’d be hard-pressed to find a single piece of bad news related to the actions or words of the Airbnb cofounders. In fact, they have placed the company well within the liberal-leaning society in today’s world by sponsoring gay pride festivals, denouncing the president, offering free housing to people in need, recently offering animal experiences with industry-leading animal welfare policy created with World Animal Protection, etc. Anecdotally from my time at Airbnb, I can say they make a great leadership team and they’re humble. I’ll address the press related to housing shortages below.

Question: What are some of Airbnb’s largest future hurdles to continued success and growth? Tell me in the comments below.

So why did Uber take off so rapidly? It was because of two things. First, they had an existing infrastructure. Second, the traditional taxi experience is so horrendous that literally any alternative people would flock to.

Contrast that with the traditional hotel experience Airbnb was going up against where no one really had strong complaints. Sure, it could be improved, but the traditional hotel experience was not horrendous, not even close as is the traditional taxi experience. In fact, many people simply prefer hotels, even today. No one prefers a traditional taxi experience. This shows the superiority of Airbnb’s service especially when you consider that with each booking the Airbnb user is more likely to make another booking.

Now let’s get into some numbers. Take a look at the below chart showing Airbnb’s stock valuation from 2008 to 2019:

You’ll notice that in 2016, 2017, and 2018 the company was not revalued. While they did not receive any additional funding, we know they grew. But, at what rate? Do we think they grew only $5B in 4 years since 2016? The answer is no.

From 2012, when the company was valued at $2.5B until 2016 when the company was valued at $30B the average growth rate in valuation was 111% per year. Granted, the year to year variance was anywhere from 18% to 400%. Let’s assume the company grew at 50%, 40%, and 30% in 2017, 2018, 2019, respectively. This brings the companies valuation to $81.9B in 2019. Assuming a further 20% growth rate in 2020, the company would be valued at $98.3B.

Of course, this is a gross estimate. But, I would argue accurately.

Update: A few months after I wrote this article, TechCrunch published an article showing the growth rate of guest arrivals on NYE. The growth rate of guest arrivals, which we can assume is a good measure of the direction of company growth, is extremely close to my estimates above.

Alternatively, from 2012 (Valuation, $2.5B) to 2016 (valuation, $30B), the company grew by 1,100% in those four years. Assuming the company grew by another 1,100% from 2016 to 2020, this gives Airbnb a valuation of $330B ($30B * 1,100%). Of course, companies grow slower as they mature (see chart above). Let’s cut that growth rate in half leaving us with a valuation of $165B.

Now, let’s take the media between these two numbers – $98.3B and $165B – and we’re left with an estimated valuation of $131.6B.

Now, this is all crazy, right? I’m crazy, right? Maybe.

Let’s take a look at Facebook whose valued at $555B. They destroy Airbnb in the amount of revenue at $55B annually. Airbnb has revenue of $4B though this number is likely significantly understated as it’s based on a report from 2018 indicted $1B in revenue in Q3 2018. Q3 is Airbnb’s most profitable quarter. In another report based on 2017 numbers, Airbnb generated $93 million in profit on 2.6 billion revenue. So the company only grew from $2.6B to $4B in revenue over two years. This is a conservative estimate.

They also destroy Airbnb in terms of active users at 2.3B. Airbnb has 150M users, but the more important number is active users. Fast Company says that only 15% of users are active and RJmetrics says that 20% are active. This means that of the 150M, only about 30M are active. So Airbnb makes $4B from 30M users while Facebook makes only $55B from 2.3B users. Interestingly, this means that Airbnb’s revenue per active user is more than 5x higher than Facebook ($133 versus $24).

Facebook was founded only 4 years earlier than Airbnb.

Additionally, we can look at the P/E ratio. Facebook’s is 30. The average P/E ratio for technology companies is 20-25. Companies with a high P/E ratio means investors are pricing in future growth. Do we think Airbnb has big potential future growth…?

Yesterday I was riding in an Uber, the Airbnb of car rentals, in Buenos Aires, Argentina when the driver asked what I do. To explain what I do, I first asked the driver, a 20 something college student, if he’s heard of Airbnb. He said he has not. This is not unique. As I’m the world’s best at everything to do with Airbnb, the topic comes up often in conversation. I’ve traveled in 34 countries (as an Airbnb guest) and most of the world still does not know about Airbnb.

This is interesting because Millennials account for roughly 60% of all guests who have ever booked on Airbnb yet many still don’t even know the company exists.

What that means for Airbnb is that simply by continuing operations, the growth will continue at an accelerated growth rate. Granted, more young people know about Airbnb than older people, but young people who should know about Airbnb (my Uber driver) do not. Older people travel more and have more money. Yet they’re also more likely to be stuck in their ways with hotels. Each year that Airbnb is around, there will be tens of millions of new travelers already aware of Airbnb and now with extra money to spend.

So, will Airbnb stock have significant future growth? Assuming yes and assuming a P/E ratio of 25, the company valuation is $100B. As I don’t know the number of outstanding shares nor can I make a guess, instead of using price per share divided by earnings per share I am using total valuation divided by total earnings.

Airbnb IPO Valuation: Conclusion

I’ll be the first to admit the number of inaccuracies in the above article. There has to be due to the number of assumptions made. But the basic premise is accurate, Airbnb is significantly undervalued. I think the current value represents only 25% of the true value. We will know the true value shortly after the expected Airbnb IPO in 2020.

Back in 2015 when I purchased my shares as a prior Airbnb employee, I was offered on the private market a per-share price of $125. At the time they were about $90 per share. That represents a 40% premium. Given the value today of $35B, a 40% premium brings the value to $49B. To me, this represents the rock bottom public valuation. Additionally, I was offered this due to people thinking there is a significant upside to Airbnb.

Pre-IPO Uber was valued at $120B. Today they’re at $50B. Given the info above, this is no surprise. They have a tough road ahead. Pre-IPO Airbnb is valued at $50B in the private markets. Post-IPO Airbnb will be worth in excess of $100B.

Airbnb is in every city on the planet (100,000+) with 7M available listings. Airbnb is larger than the next eight biggest hotel groups, combined.

Do you plan to invest in the Airbnb IPO (ABNB)? What do you think the true value of Airbnb is in 2020?