16 ms·
Airbnb reportedly raising $1B at $24B valuation
- acconrad 11y agoThat's great but seems - wow crazy. Why does one need that much money that late (not a rhetorical question, I've only ever been at Pre-B series startups)? I've already seen Airbnb ads on TV, and it's not like they're a hardware company or some place like Zipcar where they need the capital to buy more machinery or equipment, so what is this really going towards? They're still operating at a loss, so how is this going to get them further out of the red, unless they expect to be operating in the red for a while? Another tangential question I have is - where does YC fit now for startups? We're seeing all of these billion "Unicorn" companies coming up, and YC has grown from a handful of companies in a class to over 100 - can the next YC class really expect to earn the same esteem as the older ones? Is YC incrementally losing it's value to startups with every class that starts (and grows)?
- pbreit 11y agoTruth: best to raise when you can, not when you need.
- kzhahou 11y agoDoes that scale into the billions, though?
- shiven 11y agoApparently, it just did.
- 001sky 11y agoConsider it like FB buying instagram. Company is playing around with a small amount of equity as a % of total value. Having some liquidity in the bank for a rainy day is a good thing in a bubble. As is investing it in a way that will increase an eventual IPO value. So in either the upside or the downside here they have options to use the money that likely will move the needle on valuation.
- pbreit 11y agoAbsolutely. Once you raise, you're practically praying for the economy to tank. All of your poorly funded competitors go away and everything gets way cheaper (primarily, labor).
- mcintyre1994 11y agoDoes this hold if you're selling a luxury good like holidays?
- pbreit 11y agoI'm sure there are exceptions but very few. And not that one. A well-capitalized player could go a long way towards sewing up the entire market.
- patio11 11y agoIs YC incrementally losing it's value to startups with every class that starts (and grows)? Would you rather have the deal that Airbnb got from YC or the deal that the next three kids with a gleam in their eye will get from YC? Airbnb vintage YC deal: Here's $15k for 7% of your company. Also, welcome to the club! Nobody has heard of us, but we're still a club. Next YC deal: Here's $120k for 7% of your company. Also, welcome to the club! People have heard of us! You now have social permission to tap the resources of several hundred companies, some of which are worth billions of dollars. You're a mortal lock on raising a round subsequent to Demo Day at a valuation which will make angels weep while happily investing. You have preferential access to every connection which matters in Silicon Valley, including top-tier VC firms, a pool of interested employees, potential acquirers, and vendors who you need good relations with. Comes with one free TechCrunch article, too!
- 7Figures2Commas 11y ago> Next YC deal: Here's $120k for 7% of your company. Also, welcome to the club! People have heard of us! You now have social permission to tap the resources of several hundred companies, some of which are worth billions of dollars. You're a mortal lock on raising a round subsequent to Demo Day at a valuation which will make angels weep while happily investing. You have preferential access to every connection which matters in Silicon Valley, including top-tier VC firms, a pool of interested employees, potential acquirers, and vendors who you need good relations with. Comes with one free TechCrunch article, too! Sigh. YC has a lot of cachet and no doubt opens certain doors, but founders should never drink too much Kool-Aid. For all of the wonderful things YC provides, the success of YC startups basically follows the same power law distribution you see across the Valley and no founder should delude himself or herself that being part of a "club" guarantees success in today's market. Just look at the experience of the founder of Dating Ring (YC Winter 2014)[1]: And so we focused on growth. For a year, my cofounders and I worked 100-hour weeks, all major holidays and weekends. We gave up social lives and had one of the most impressive graphs at the crazy 78-company Demo Day YC hosted – 60% MoM revenue growth, with 25k in revenue for March. We had more press and name recognition than any other company there, and my pitch was named as one of the top 8 by TechCrunch. Out of the 500 investors there, only one invested. [1] http://advice.datingring.com/fundraising-while-female/ http://advice.datingring.com/fundraising-while-female/
- nostrademons 11y agoI assume that the money is going to Airbnb ads on TV (and on airline seatbacks, and on Facebook, and everywhere else). When you have a model that works and is proven profitable on a unit basis, it makes sense to cram as much money as possible into distribution channels to make sure that it gets in front of everyone.
- untog 11y agoWhen you have a model that works and is proven profitable on a unit basis, it makes sense ...to IPO. In the normal world.
- nostrademons 11y agoPost Sarbanes-Oxley, it never makes sense to IPO, ever. You incur costs of several million dollars for compliance. Meanwhile, the ostensible purposes of an IPO (to provide liquidity for shareholders, and to provide access to public capital markets for the company) have had other solutions crop up. There's now an active secondary market for employee stock of private companies, and the vast majority of the money that would go into the public markets is now managed by the same large investment firms that do these late-stage private rounds. I remember back when I was a countercultural libertarian hacker, we had a saying: "The Internet treats censorship as damage and routes around it." Well, the financial markets treat regulation as damage and route around it.
- patio11 11y agoPost Sarbanes-Oxley, it never makes sense to IPO, ever. Let's go with, maybe, "Pre-SOX, you could reasonably IPO on revenue in the tens of millions with a valuation in the hundred of millions. SOX decisively removes that option. We now have economically viable alternatives to IPO, for high-growth tech companies, at valuations into minimally 'the tens of billions of dollars.' It may make sense to IPO if one is not a high-growth tech company or one desires a valuation higher than 'tens of billions of dollars.'" (Context: Uber is $25 ~ $50 billion, Microsoft is ~$375 billion.)
- hlmencken 11y agoThe ability for private equity to support businesses before they go public has become absurd.
- anigbrowl 11y agoAgreed, and it's bad for would-be competitors because they can't identify weaknesses in incumbents, and can't argue for their alternative being better as there are no data in the public sphere, not to mention leaving small retail investors out in the cold. PS Great username.
- paganel 11y agoThis is a bubble waiting to burst. There's too much money being invested with no real and direct oversight, and that's when capital misallocation happens.
- ThomPete 11y agoIf airbnb can't become a successfully profitable company based on their current revenue and trend, there is a serious problem with the VC model. It's like watching the sub-prime loans just keep on going because no one have any understanding of what is going on. In my mind this is part of an absolutely absurd game where a little groups of tightly knitted VCs leech onto each others successful investments to pump up some crazy valuations which they can then use to make even bigger. There will be a correction to this sooner or later and it's going to be affecting alle the other already undervalued tech companies out there.
- spullara 11y agoWould it be imprudent to point out that the late stage rounds aren't being done by VCs?
- ThomPete 11y agoNo but that doesn't change the fact that its the same people involved in that small ecosystem.
- paul 11y agoWhen choosing between immediate profitability or faster growth, the smart decision is typically faster growth, as that leads to much greater profits down the road. Remember when the HN crowd thought that Facebook could never be profitable because they were making the same tradeoff?
- rokhayakebe 11y agoConsider a few things before calling the market crazy: Total revenue to date: around $2B. Revenue in millions Y by Y since 2011: 40,180,250,450,850 - See the growth? Total money spent to reach nearly $2B in aggregate revenue: $2.5B We do not know their cost of customer acquisition. We do not know their marketing spend. We do not know the median lifetime value of customers. We are not sure what other options users think/know they have. For a business pulling in $1B in yearly revenue, raising $1B is not necessarily significant.
- benatkin 11y agoDoes that revenue figure include the percent paid to the hosts with each booking?
- adventured 11y agoTheir take is nowhere near $1 billion in annual revenue. It would imply they're taking a thousand dollars in sales or so per listing per year at this point. That would more than require every listing be sold out at all times.
- benatkin 11y agoSeems incidental to me that money is technically going to their bank account(s) while the payments are being processed.
- morgante 11y ago> It would imply they're taking a thousand dollars in sales or so per listing per year at this point. That would more than require every listing be sold out at all times. I don't follow. Their take is ~10%, so $1,000 of revenue for them requires $10,000 in annual bookings. If every listing is listed 100% of the time, that would imply an average rate of $27/night. (Highly unlikely.)
- rokhayakebe 11y agoActually, it is near $1B. Their gross is in the billions.
- nharada 11y agoWhy does Airbnb feel the need to raise such a large funding round instead of going for an IPO?
- adventured 11y agoBecause much like Twitter's scenario, they're not worth nearly as much in the public market as they are today in the private market. Their numbers today won't support that hyper valuation. So they'd have a celebrated IPO, raise $2 billion or so, and their stock would promptly crater as the first few quarterly results rolled in. The public market is going to look at HomeAway's $3 billion valuation and $446 million in sales, and wonder why they're paying 8 or 10 times more for Airbnb, when the actual financial results are far less. They also can raise this billion at a tiny dilution, while not acquiring the intense scrutiny that goes with being public. Twitter for example has been under a challenging microscope since they went public. It's painful to flesh out your business model on the front page of the New York Times.
- bane 11y agoFrom a conversation on just this topic a day ago https://news.ycombinator.com/item?id=9728648 https://news.ycombinator.com/item?id=9728648
- utnick 11y agoFor people questioning the valuation, There is already a public company that is very similar to airbnb called Homeaway. They are profitable with a 3 billion dollar market cap. It doesn't seem far fetched to me to say airbnb is an order of magnitude more valuable than homeaway based on number of listings and mindshare I see online.
- adventured 11y agoHow about Expedia then: $5.7 billion in sales. $400 million profit. Solid, consistent growth. $15 billion market cap. Airbnb might achieve those metrics - ten years from now. Or, going on the order of magnitude premise, it implies Airbnb is worth half as much as Priceline.com: $8.4 billion in sales. $2.4 billion profit. This is a fantasy valuation for Airbnb, that is pulling forward returns from far into the future. Airbnb seems to have an excellent business, and they may grow into that valuation one day - that day is not nearby.
- lifeisstillgood 11y agoSorry to be picky but pulling into a current valuation all the future profits is the point of a valuation. The value of a company stock today is all of expected returns from stock ownership (ie dividends and capital) for the life of the company. If not then I would but the stock from you and just wait for it to survive longer than the timeline you valued it at. But airbnb has a long way to go to be Expedia / Priceline size. Mostly it needs to stop relying on 75% borderline illegal listings !
- adventured 11y agoNo, pulling into the current valuation all the future profits is not the point of a valuation. If you did that, there would be no return to ever be had for the investors. Under that premise, Facebook should have been valued at $200 billion at their IPO (or even earlier). Google should have been worth $300 billion at their IPO in 2004. Apple should be carrying a $20 trillion market cap using that calculation, pulling all of their future profits into their present valuation. Investors do not normally reach a valuation for an investment today, based on profits ten years from now, with the expectation that the price paid today is equal to what the profits in ten years will justify. That's a recipe for not yielding any returns for ten years. The point of a valuation is to invest capital into a company based on speculation of future returns to be yielded based on future profits, not to pay for all of those future profits with your investment today. The value is determined by the near-present estimation of what the business is worth, and with a potential bias elevating the valuation. The investor return comes from all of those future profits not being priced into the current valuation.
- ed_blackburn 11y agoThat's some runway. I'd love to know what that $1B goes on for a business that produces software and hosts it on commodity servers? Acquisitions? World wide advertising campaign? Liquidity for original investors? A year ago airbnb was a site I'd heard of because of HN. Now friends all over the UK are familiar and use it. Phenomenal growth, off the back of such a simple idea. Kudos for executing it!
- dopamean 11y agoIt might not be that much of a runway. I'm not sure how many employees Uber has but Crunchbase says between 1k and 5k. If that is close to the top estimate and their cost per employee is near 200k then a billion dollars may end up being less than a year of runway when you factor in marketing costs and anything else.
- buster 11y ago$1B seems crazy and i am wondering why a website (more or less) could be evaluated at $24B. But i love AirBnB and i hope they disrupt all the tourism business. AirBnB is hopefully the future of travel.
- roguas 11y agoWebsite is not evaluated. Business they make using that particular website is. There is a difference... while making airbnb website can take you 3 months with a good team of devs... building business of this magnitude will take years
- buster 11y agoOf course, i know that. Also they do a lot in every country, they advertise, they help people, but still, they don't produce goods. They have a lot of customers.But they are still "just a website" after all.
- cactusface 11y agoThey broker transactions. The "good" they produce is the marketplace. eBay is just a website, they also broker transactions to create a marketplace.
- Rainymood 11y agoBy that definition, the early google didn't produce goods either ;) they provide a ~ valuable ~ service (the good)
- jmngomes 11y agoI think the OT is referring to cases that don't have advanced technology as a competitive advantage...
- robbiemitchell 11y agoProducing goods is often not as profitable as owning the market and taking a cut of every transaction.
- andy_ppp 11y agoIt's weird that a web business with an actual revenue stream gets such a lot of flack for a high valuation. They aren't Facebook or Instagram, they are a monopoly and will make stacks of cash. But does make me think there's a market big enough for a few smaller players here...
- dylanjermiah 11y ago>They aren't Facebook or Instagram, Facebook is different. Facebook actually had/has a ton of revenue. >they are a monopoly and will make stacks of cash Airbnb is not a monopoly, there is a lot of competition for space.
- ThomPete 11y agoPlenty of competition in that market. I have used 3 different services. Airbnb does not benefit from network effects the same way that facebook does.
- cylinder 11y agoA monopoly, are you kidding?
- andy_ppp 11y agoI disagree with the comments here; they are orders of magnitude bigger than their nearest competitor. And that difference will only get larger. I think Facebook will succeed through acquisitions in the future and you can think of facebook.com as not relevant for everyone under 20. There is very rarely a reason to go elsewhere unless you want a hostel or hotel. AirBnB the brand is a virtual monopoly, I think even the founder virtually confirms as much in his How to start a startup talk... here is the text and a link. Q: One more question, the question is, in this particular situation with Airbnb, a lot of people think it is not necessarily a technology company, but more of a marketing company. Brian Chesky: Good question. I will answer the question with a story. Alfred Lin: Let me preface that question with a series of questions. Do you today have propriety technology? Brian Chesky: Yes. Alfred Lin: Do you have a moat? Brian Chesky: Yes Alfred Lin: Do you have network effects? Brian Chesky: Yes. Alfred Lin: Do you have pricing power? Brian Chesky: Yes Alfred Lin: Do you have a good brand? Brian Chesky: I think so . Alfred Lin: Are you a monopoly? Brian Chesky: I am not going to answer that one <audience laughs> https://clip.mn/video/yt-RfWgVWGEuGE https://clip.mn/video/yt-RfWgVWGEuGE
- bcg1 11y agoIf by 2020 they expect to earn $3 billion a year... then it would take 8 years to get your money out at this valuation, correct? And that projection is 5 years away, they currently aren't profitable, and the $3 billion projection doesn't include taxes, interest, or depreciation. I'm not saying this won't work out but on the face of it, those numbers don't seem great. Who is going to shell out $1 billion for that? I sure hope that institutions like pension funds etc aren't getting pulled into this because of repressed rates of return on "safe" fixed income investments, because this has the potential to end badly.
- dopamean 11y agoOr they are hoping that the company will IPO one day and be worth 100+ billion in which case they will have quadrupled their money.
- damoncali 11y agoYou have to look at the terms before making that judgement. It seems very unlikely that it's a straight equity deal. You could imagine a preferred offering with a 1x liquidation preference and some modest return, for example. The details really matter here.
- jgalt212 11y agoYes, that very well may be true, but you do have to consider the fact that they cannot go public, or it would be difficult to do so, at a price below $24B. So whatever "special treatment" late stage investors get, they do make it much hard for themselves to realize a successful IPO exit.
- bane 11y agoNo, you're thinking about this all wrong, the valuation is due to all the physical assets they own. More seriously, these kinds of valuations send a powerful signal that physical property ownership should be viewed less and less as an asset to a company and more as a burden. Since AirBnB shifts the property ownership over to their room network, shifts up and down in the short-term rental market hurts them and provides a buffer to AirBnB. Traditional hoteliers have to keep maintaining empty rooms in the event the industry picks back up, or build more rooms if the industry is at a high. On the flip-side, AirBnB can be sensitive to local regulations and property owners might simply decide to not have their place up for rent, making availability a slight risk. To put this valuation into perspective, Marriott International has a Mkt Cap of $21.5B They're the 3rd largest hotel group on the planet and own something like 125,000 rooms. Airbnb claims 1,000,000 listings, but owns none. Makes money only off of the service fees (6-12%) and credit card processing (3%). Looked at another way, this valuation says to the hotel industry "having professional employees and facilities is eating into your bottom-line", because AirBnB simply doesn't have to assume those costs. Prediction: regular hotel rooms will start showing up AirBnB within 5 years.