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AirBnB Valued at $2.5 Billion

Posted on Thursday, Jul 11th 2013

Market reports pegged the vacation rental market for the U.S. and Europe at $85 billion in 2010. The market continues to grow, and according to recent reports last year, its value increased 10% over the year. Besides entire homes being rented out for vacations, there is also an increasing trend of individuals sharing rooms within their own homes as vacation rentals. Players like AirBnB are being named as forerunners in this emerging “sharing economy”  – a concept where people connect through online media to share services with each other.

AirBnB’s Financials
AirBnB has seen tremendous growth in the recent years. At the end of the previous year, it had more than 4 million guests who had used more than 300,000 properties across 192 countries listed on their site. A year ago, it had an estimated 110,000 listings spread across 186 countries. Today, estimated 50,000 to 60,000 users book rentals on AirBnB each night.

Unlike other rental sites, AirBnB charges both the property owner and the vacationer a fee for its services. Each time a property is rented, AirBnB charges 3% of the list price from the renter. The vacationer is charged a markup of 6%-12% of the rental fee as commission. The company’s international expansion focus has seen positive traction. In fact, the previous year was a tipping point for AirBnB in that international revenues exceeded domestic revenues.

Last year, more than 15 million nights booked on their site helped them bring in nearly $190 million in revenues. Analysts estimate the room nights to increase to 100 million “eventually,”  translating to a revenue potential of $1 billion a year.

The company remains venture funded, with $120 million funds received from Y Combinator, Sequoia Capital, Youniversity Ventures, Greylock Partners, SV Angel, Ashton Kutcher, Andreessen Horowitz, General Catalyst Partners, Jeff Bezos and Digital Sky Technologies. Analysts estimate the valuation at $2.5 billion. AirBnB has not disclosed plans of any IPO, but the market is waiting eagerly for one. The company has a solid business model supporting a useful service.

AirBnB’s Market Expansion
AirBnB believes in the importance of being global as well as local in its operations. Recently, they announced the acquisition of Localmind, a startup that lets users post location-specific queries. AirBnB believes in the importance of social interaction for trip planning. The acquisition of Localmind will bring its three-person team under AirBnB’s umbrella to help them develop “social products.” The terms of the deal were not disclosed.

Meanwhile, AirBnB is also improving its mobile and security products to attract more visitors. Recently, it introduced another security measure, Verified Identification. As part of the service, both offline and online identities of users will be verified by connecting them with each other. As part of offline identity verification, users will be expected to either scan a photo ID or passport, or answer questions similar to a credit check. They have also introduced a ratings system that will allow guests and hosts to provide feedback to act as references for first-time users.

As part of an improved mobile experience, they also updated their Android app that will help improve pre-approval options for hosts and calendar management for the listed properties. As part of the upgrade, hosts will be allowed to pre-approve, deny, or request more information from guests. The updated calendar feature will also improve the ability to update calendar listings and will ensure that the latest inventory is available for users.

The industry is being hurt by increased regulations being levied by city governments which are outlawing such rentals. The governments of New York City, Amsterdam, and Quebec have barred residents from letting out their properties without proper licenses. Not only are legislators concerned about safety issues, but also about AirBnB’s unwillingness to collect a hotel tax. AirBnB believes that the model will evolve and such legislation may not last long.

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