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2018 IPO Prospects: AirBnB More than Halfway Ready to List

Posted on Friday, Jan 12th 2018

If there is one Billion Dollar Unicorn that has never been in a rush to go public, it is AirBnB. The ten-year old company has taken to heart Warren Buffett’s mantra of “get rich slow”. After carefully planning its financial and operating model, AirBnB believes that it will be ready to go public this year.

AirBnB’s Growth Offerings

The vacation rental business may have been the first business that AirBnB ventured into. But, AirBnB believes that by 2020, more than half of its revenues will come from services that it is not currently operating.

As part of the business model expansion, AirBnB has been positioning itself as a travel company and not just a rental reservation site. After initiating the experiences segment last year, it is now focusing on additional opportunities such as offering local tours, luxury accommodations, and evaluating Airbnb-branded apartment buildings. As part of the luxury accommodation offering, AirBnB Lux, the company purchased Luxury Retreats, a Montreal-based vacation rental platform, for an undisclosed sum. Luxury Retreats had a portfolio of over 4,000 listings worldwide.

It is also adding newer technologies to its services. It added virtual reality features to listings so that guests can connect with hosts and co-travelers and see 360 photos and 3D scans inside a home or city. The feature will help the travelers get insights into the place and the city that they are going to visit. In the future, AirBnB plans to expand the capability to allow guests to evaluate destinations and home options with co-travelers and hosts while interacting in a more natural manner. Similarly, it is working on integrating augmented reality into the service. It believes that it will be able to help travelers by recognizing surroundings and providing contextual, timely information.

Besides adding new services, AirBnB is also expanding presence in international markets. To drive growth in China, it is investing in setting up a team that will manually review every listing published to Airbnb in China and assist hosts with everything they need to optimally describe their home to potential guests. It will also begin a trial of in-home inspections where AirBnB teams will visit listings and inspect them against criteria that address quality. Finally, it is investing in providing education initiatives to the host community and implementing a Community Mentorship Program that will be a platform for best practice sharing among hosts.

Despite the initiatives, AirBnB continues to battle with several regulatory concerns. It has already witnessed legal push back from both international and domestic markets including the likes of New York, San Francisco, Barcelona, and Paris. Besides installing tougher registration policies and paying fines, AirBnB has also seen growth slow down in some markets. According to a UBS report, cities with tougher laws on short-term rentals, such as New York and Barcelona saw the number of available listings fall 10% over the year in 2017. To address some of the concerns of local authorities, AirBnB is working with policy makers to implement better regulatory systems. For instance, in cities like New Orleans and Chicago, AirBnB operates a registration system for hosts where the select data for the hosts is shared with local government.

AirBnB’s Financials

Like other e-commerce travel businesses, AirBnB earns revenues in the form of a booking commission. It charges a 3% fee on each booking made through its site and an additional service fee that ranges from 6%-12% for guests. It claims to have served over 200 million guests in more than 65,000 cities across nearly 190 countries. More recently, the company expanded into other travel services and now allows tourists to purchase customized tours and diners to make reservations at local restaurants.

AirBnB has always been prudent about its fiscal management. While focusing on revenue growth, the company has managed its costs efficiently. It is still privately listed, and does not divulge detailed financials. Reports, however, suggest that in the third quarter of 2017, AirBnB revenues doubled to $1 billion and the company remained profitable as well.

It has been venture funded so far and has raised $4.4 billion from investors including Andreessen Horowitz, Ashton Kutcher, Baillie Gifford, China Broadband Capital, CrunchFund, Dragoneer Investment Group, DST Global, Elad Gil, Fidelity Investments, FirstMark Capital, Founders Fund, General Atlantic, Anton Levy, General Catalyst Partners, Joel Cutler, GGV Capital, Glenn Solomon, and Greylock Partners. Its latest round of funding was held last year when it raised $1 billion at a valuation of $31 billion, up from $25 million in 2015.

In March last year, AirBnB announced that it was planning to go slow on the listing route and would take the time to ensure that it built out a thoughtful and methodical model. It is more than half way there, and the market is looking for AirBnB to go public soon this year.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns

This segment is a part in the series : 2018 IPO Prospects

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