6 ms·

If Airbnb is currently priced at about $2 billion, that's about 1/4 of an IHG Hotels (they own the Holiday Inn brand and another dozen or so). That sounds rich

by patio11 13y ago

If Airbnb is currently priced at about $2 billion, that's about 1/4 of an IHG Hotels (they own the Holiday Inn brand and another dozen or so). That sounds richly valued to me, but not insane. IHG (disclaimer: shareholder and double super platinum for life due to often staying there for business travel) has been trying to move, for years, into a capital structure which Airbnb had from day one: they want a cut of every night's stay without actually owning any hotel property because that's a capital-intensive location-dependent slow-growth business. They've got a substantial scale advantage on Airbnb (~600,000 rooms which each rent 300+ nights per year, whereas Airbnb does about 50 million nights a year at systematically lower price points), but 5~10% a year is great growth for them, and Airbnb is growing at about 100% every 6 months. There exist significant risks to the company, from the legal issues to merely not sustaining the hockey stick for long enough to justify the valuation, but the people with money on the line are mostly rich and sophisticated. If they lose their investment, oh well, capitalism happens. It's categorically better than when $X00,000 of pet food sold at a $Y0 million loss was valued in the billions.

larrys 13y ago
"That sounds richly valued to me, but not insane." The threats to airbnb are much greater (and of course different) than the threats to IHG. IHG has a lock on locations because of contracts in addition of course to locations which they own. IHG has brands. And they have standards. You book with them because you expect a certain level of service when you visit one of their hotels (regardless of who owns the property). They have a functioning marketing machine which fills up hotel rooms with conventions and corporate travel. Otoh, airbnb is much more susceptible to a threat from someone else doing something similar, slightly different, or essentially the same. There is a barrier to entry in being IHG as they have infrastructure and an established brand. To me that makes them valuable.
- Patrick_Devine 13y ago
  I agree with most of your points, but one thing airbnb does have going for it is a network effect. They have both the supply, and the demand and that makes it difficult for other people to break into the space. If I'm looking for a place to stay, my default option will be the place with the most inventory. If I've got a place to rent out, I want to list it where most people are looking and where I can get the highest occupancy. Since airbnb is effectively an exchange, how would another exchange move in to replace it? Marketing and branding is one way, particularly since airbnb hasn't fully saturated the market. One strategy might be to include hotel rooms in listings since airbnb is unlikely to do that given their niche. Another way might be a series of negative events (eg. a serial stalker or rampant bed bugs) which could really tarnish their brand.
  - frandroid 13y ago
    https://www.roomorama.com/ https://www.roomorama.com/
    - ojbyrne 13y ago
      http://homeaway.com http://homeaway.com http://vrbo.com http://vrbo.com http://vacationrentals.com http://vacationrentals.com
  - toomuchtodo 13y ago
    AirBNB is a commodity to me. I can replace the value they provide just by pointing my browser to another provider. That is the double-edge sword of being a tech company. Non-capital-intensive, but fast growth. Make it work, and make your money fast, because what you're doing has almost no barrier to entry other than code and server time.
    - wepple 13y ago
      I agree - while AirBnB may have market dominance, it can be replaced: see myspace Trying to knock a major bricks n mortar hotel chain off it's perch is 1000x more difficult
      - ianstormtaylor 13y ago
        You're both insane... No one would have argued that Myspace was as easy to replace as simply "code and servers". Just like no one is going to argue that Facebook can be replaced with just code and servers. What delusion do you tell yourself to discount everyone else that talks about the importance of network effects? They're the crazy ones? Sorry, just blows my mind how people think in such black and white terms. Just because one thing is easier to displace doesn't mean it's immediately a "commodity" that can be replaced by the equivalent code and servers farms. Might be great dev-think but definitely gets you nowhere fast when trying to actually build a successful business.
        13y ago
- jcampbell1 13y ago
  Who is IHG? They are the place I end up at because I search at Hotels.com and they posted the cheapest rate. Sounds like a shit business that is as profitable as an airline. I don't use AirBnB, but my understanding is they take 12% no matter what. In some ways, AirBnB is more like Hotels.com than the local Holiday Inn.
  - timr 13y ago
    "Who is IHG? They are the place I end up at because I search at Hotels.com and they posted the cheapest rate. Sounds like a shit business that is as profitable as an airline." IHG is InterContinental Hotels Group, one of the largest hotel operators around. And given that their net profit margins are around 25% annually (that's $500 million in profit, and it's growing YOY) [1], I wouldn't be too quick to dismiss them as "a shit business" in favor of AirBnB's 12% surcharge. They seem to be doing pretty well for themselves. Seriously, folks: take the two seconds to look things up before you snark. You'll look smarter. [1] https://www.google.com/finance?q=NYSE%3AIHG&fstype=ii&ei=SHp8UqioCqiriAKzVQ https://www.google.com/finance?q=NYSE%3AIHG&fstype=ii&ei=SHp...
AndrewKemendo 13y ago
My question then is: How difficult would it be to dissolve the core components of Airbnb vs IHG? I think the answer is trivial, and as a result they should not be considered equivalent. Can you perfectly substitute the holdings of IHG with the software of Airbnb over the long term? Could Airbnb create a market equilibrium point for non-resident housing in absence of brick and mortar hotels?
morgante 13y ago
100% agree, but I think that shows how not all tech valuations are created equal. Airbnb and Evernote, for example, both make sense of me. They provide immense value to people (with obvious cash streams) and are not immediately replaceable. Meanwhile, I'd put Twitter and Path in with the Pets.com crew.
- harryh 13y ago
  Twitter provides immense value for me. Easily hundreds of dollars a year worth of value. Easily. I don't know if they can capture that value very easily. There is certainly immense risk. I'm not buying their stock. But there is definitely value there.
  - toomuchtodo 13y ago
    Would you pay for the value they provide? If so, how much?
    - theorique 13y ago
      I would have no problem with paying $5-10 per month for each of Google, Facebook, and Twitter, as they are currently constituted (although as long as I'm paying money, let's say that they are 100% ad free). The trouble is, if they charged this, then a great many people who add value to my experience of Facebook and Twitter would drop away, reducing my own experience of the networks and probably making me question whether it was worth the money for me. (Google is a separate question because the network effect is less of an issue for web-apps, email, calendar, and so forth - they are still valuable for my personal use even without the sharing and networking features.) Many people already pay similar prices for the higher end versions of Dropbox or Evernote, but again the "web app" vs "social network" factor comes into play. It doesn't benefit me as a Dropbox or Evernote user if more people use Dropbox or Evernote, except in very indirect ways, whereas it does benefit me as a Facebook user if my friends all use Facebook.
  - morgante 13y ago
    > Easily hundreds of dollars a year worth of value. Easily. So naturally you'd pay hundreds of dollars a year for a subscription, right?
netcan 13y ago
Interesting comment. Bringing up the capital intensiveness is an interesting point and really gets to the heart of how inherently insane valuing these companies is. The archetype story in my mind of how public companies work is: A company has some proven way of turning capital into revenue. They go to capital markets. Raise money Make the revenue stream and pay it to investors as dividends. This revenue stream has some risks and companies can always fail, but ultimately they risks are small enough that companies can be treated by investors as living forever. Obviously that story gets complicated by reality. But, it's a starting point and it has some core of truth when looking at companies like IHG. Companies like Twitter or AirbnB essentially don't have capital investments in the same sense. They have something like R&D costs (though even calling it R&D is weird if you compare it to the R&D of companies like pharmaceuticals) but those are covered by VCs earlier on. They do have revenues and they have even more potential revenues so they have value. But, they are clearly not going public to raise capital with which to grow the business. They are going to get liquidity for their shareholders. The other big difference with IHG is the risk profile. Twitter & AirBnB do have much more rapid growth potential. They also have much more spectacular failure potential. Even a solid company like Google could be obliterated in a few years by an upstart search engine. Facebook, Twitter & AirBnB have even moor 'gone tomorrow' potential. Twitter or Facebook might just become unpopular, giving way to the next new thing. Most users even expect them to. I think the recent examples from Blackberry & Nokia will be repeated, with even younger companies. I'm not implying that tech companies can't last for generations. I just think they have much higher chances of losing all their value in any given 5 year interval than a bricks and mortar company. All the underlying things are different. The concept of a company as machine turning capital, inputs and labour into revenue doesn't apply. The concept of IPOs as a way of raising capital doesn't apply. Growth potential is completely different. The idea of companies as semi-immortal doesn't apply in the same way. All those things are supposed to add up to a guess at a companies intrinsic value, the rational valuation of the company. Intrinsic/expected value is a pretty abstract concept. It's a lot more abstract when we're talking about lower chances at a bigger prize. I don't know what that means for how companies are valued. I suspect there is more systemic risk as this stuff moves to public markets.

by patio11 13y ago

larrys 13y ago

"That sounds richly valued to me, but not insane." The threats to airbnb are much greater (and of course different) than the threats to IHG. IHG has a lock on locations because of contracts in addition of course to locations which they own. IHG has brands. And they have standards. You book with them because you expect a certain level of service when you visit one of their hotels (regardless of who owns the property). They have a functioning marketing machine which fills up hotel rooms with conventions and corporate travel. Otoh, airbnb is much more susceptible to a threat from someone else doing something similar, slightly different, or essentially the same. There is a barrier to entry in being IHG as they have infrastructure and an established brand. To me that makes them valuable.

Patrick_Devine 13y ago
I agree with most of your points, but one thing airbnb does have going for it is a network effect. They have both the supply, and the demand and that makes it difficult for other people to break into the space. If I'm looking for a place to stay, my default option will be the place with the most inventory. If I've got a place to rent out, I want to list it where most people are looking and where I can get the highest occupancy. Since airbnb is effectively an exchange, how would another exchange move in to replace it? Marketing and branding is one way, particularly since airbnb hasn't fully saturated the market. One strategy might be to include hotel rooms in listings since airbnb is unlikely to do that given their niche. Another way might be a series of negative events (eg. a serial stalker or rampant bed bugs) which could really tarnish their brand.
- frandroid 13y ago
  https://www.roomorama.com/ https://www.roomorama.com/
  - ojbyrne 13y ago
    http://homeaway.com http://homeaway.com http://vrbo.com http://vrbo.com http://vacationrentals.com http://vacationrentals.com
- toomuchtodo 13y ago
  AirBNB is a commodity to me. I can replace the value they provide just by pointing my browser to another provider. That is the double-edge sword of being a tech company. Non-capital-intensive, but fast growth. Make it work, and make your money fast, because what you're doing has almost no barrier to entry other than code and server time.
  - wepple 13y ago
    I agree - while AirBnB may have market dominance, it can be replaced: see myspace Trying to knock a major bricks n mortar hotel chain off it's perch is 1000x more difficult
    - ianstormtaylor 13y ago
      You're both insane... No one would have argued that Myspace was as easy to replace as simply "code and servers". Just like no one is going to argue that Facebook can be replaced with just code and servers. What delusion do you tell yourself to discount everyone else that talks about the importance of network effects? They're the crazy ones? Sorry, just blows my mind how people think in such black and white terms. Just because one thing is easier to displace doesn't mean it's immediately a "commodity" that can be replaced by the equivalent code and servers farms. Might be great dev-think but definitely gets you nowhere fast when trying to actually build a successful business.
      - 13y ago
jcampbell1 13y ago
Who is IHG? They are the place I end up at because I search at Hotels.com and they posted the cheapest rate. Sounds like a shit business that is as profitable as an airline. I don't use AirBnB, but my understanding is they take 12% no matter what. In some ways, AirBnB is more like Hotels.com than the local Holiday Inn.
- timr 13y ago
  "Who is IHG? They are the place I end up at because I search at Hotels.com and they posted the cheapest rate. Sounds like a shit business that is as profitable as an airline." IHG is InterContinental Hotels Group, one of the largest hotel operators around. And given that their net profit margins are around 25% annually (that's $500 million in profit, and it's growing YOY) [1], I wouldn't be too quick to dismiss them as "a shit business" in favor of AirBnB's 12% surcharge. They seem to be doing pretty well for themselves. Seriously, folks: take the two seconds to look things up before you snark. You'll look smarter. [1] https://www.google.com/finance?q=NYSE%3AIHG&fstype=ii&ei=SHp8UqioCqiriAKzVQ https://www.google.com/finance?q=NYSE%3AIHG&fstype=ii&ei=SHp...

AndrewKemendo 13y ago

My question then is: How difficult would it be to dissolve the core components of Airbnb vs IHG? I think the answer is trivial, and as a result they should not be considered equivalent. Can you perfectly substitute the holdings of IHG with the software of Airbnb over the long term? Could Airbnb create a market equilibrium point for non-resident housing in absence of brick and mortar hotels?

morgante 13y ago

100% agree, but I think that shows how not all tech valuations are created equal. Airbnb and Evernote, for example, both make sense of me. They provide immense value to people (with obvious cash streams) and are not immediately replaceable. Meanwhile, I'd put Twitter and Path in with the Pets.com crew.

harryh 13y ago
Twitter provides immense value for me. Easily hundreds of dollars a year worth of value. Easily. I don't know if they can capture that value very easily. There is certainly immense risk. I'm not buying their stock. But there is definitely value there.
- toomuchtodo 13y ago
  Would you pay for the value they provide? If so, how much?
  - theorique 13y ago
    I would have no problem with paying $5-10 per month for each of Google, Facebook, and Twitter, as they are currently constituted (although as long as I'm paying money, let's say that they are 100% ad free). The trouble is, if they charged this, then a great many people who add value to my experience of Facebook and Twitter would drop away, reducing my own experience of the networks and probably making me question whether it was worth the money for me. (Google is a separate question because the network effect is less of an issue for web-apps, email, calendar, and so forth - they are still valuable for my personal use even without the sharing and networking features.) Many people already pay similar prices for the higher end versions of Dropbox or Evernote, but again the "web app" vs "social network" factor comes into play. It doesn't benefit me as a Dropbox or Evernote user if more people use Dropbox or Evernote, except in very indirect ways, whereas it does benefit me as a Facebook user if my friends all use Facebook.
- morgante 13y ago
  > Easily hundreds of dollars a year worth of value. Easily. So naturally you'd pay hundreds of dollars a year for a subscription, right?

netcan 13y ago

Interesting comment. Bringing up the capital intensiveness is an interesting point and really gets to the heart of how inherently insane valuing these companies is. The archetype story in my mind of how public companies work is: A company has some proven way of turning capital into revenue. They go to capital markets. Raise money Make the revenue stream and pay it to investors as dividends. This revenue stream has some risks and companies can always fail, but ultimately they risks are small enough that companies can be treated by investors as living forever. Obviously that story gets complicated by reality. But, it's a starting point and it has some core of truth when looking at companies like IHG. Companies like Twitter or AirbnB essentially don't have capital investments in the same sense. They have something like R&D costs (though even calling it R&D is weird if you compare it to the R&D of companies like pharmaceuticals) but those are covered by VCs earlier on. They do have revenues and they have even more potential revenues so they have value. But, they are clearly not going public to raise capital with which to grow the business. They are going to get liquidity for their shareholders. The other big difference with IHG is the risk profile. Twitter & AirBnB do have much more rapid growth potential. They also have much more spectacular failure potential. Even a solid company like Google could be obliterated in a few years by an upstart search engine. Facebook, Twitter & AirBnB have even moor 'gone tomorrow' potential. Twitter or Facebook might just become unpopular, giving way to the next new thing. Most users even expect them to. I think the recent examples from Blackberry & Nokia will be repeated, with even younger companies. I'm not implying that tech companies can't last for generations. I just think they have much higher chances of losing all their value in any given 5 year interval than a bricks and mortar company. All the underlying things are different. The concept of a company as machine turning capital, inputs and labour into revenue doesn't apply. The concept of IPOs as a way of raising capital doesn't apply. Growth potential is completely different. The idea of companies as semi-immortal doesn't apply in the same way. All those things are supposed to add up to a guess at a companies intrinsic value, the rational valuation of the company. Intrinsic/expected value is a pretty abstract concept. It's a lot more abstract when we're talking about lower chances at a bigger prize. I don't know what that means for how companies are valued. I suspect there is more systemic risk as this stuff moves to public markets.