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Will Airbnb Continue to Grow Past Hotel Chains?

Posted on Wednesday, Jul 17th 2019

Vacation rental marketplace Airbnb is expected to go public this year. Last year, the company announced that it was delaying its IPO and focusing on improving its business and financial model. It was expected to be ready to go public by June this year. It still hasn’t announced concrete plans so far, but recent news reports suggest that it has improved its financial and operating metrics significantly.

Airbnb’s Financials

Airbnb still does not disclose many details about its financials. Last November, it had announced that it had crossed the milestone of $1 billion in quarterly revenues during the third quarter of fiscal 2018. Compare that with fiscal 2017 revenues that came in at $2.7 billion. Some analysts are forecasting Airbnb’s revenue to grow to $8.5 billion by 2021. Airbnb also claims to have been profitable for two consecutive years. It had recorded profits of $93 million in 2017. Its recent profitability figures are not known.

Airbnb remains venture funded so far with $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 in March 2017 when it raised $1 billion at a valuation of $31 billion. Recent news reports suggest that Airbnb sold some of its shares internally at a valuation of $35 billion.

Airbnb is estimated to have more than 4 million listings in 191 countries worldwide. And it continues to add to this portfolio through acquisitions.

Airbnb’s Acquisitions

The recent sale of internal stock was used to fund Airbnb’s latest acquisition. In March this year, Airbnb announced plans to acquire HotelTonight, a service for travelers seeking last-minute hotel bookings, for an estimated $465 million.

San Francisco-based HotelTonight was founded by Christopher Bailey, Jared Simon, and Samuel Shank in 2010. It is a mobile hotel booking application that focuses on offering last-minute hotel deals for travelers and includes several boutique hotels in its portfolio. Prior to the acquisition, HotelTonight had raised $126.9 million in funding. HotelTonight does not disclose its financials, but Owler estimates that the company was trending at annual revenues of $67.4 million prior to the acquisition. Airbnb hopes to leverage HotelTonight’s boutique property listing to drive higher bookings on its platform.

Earlier this year, Airbnb also announced the acquisition of Denmark-based Gaest for an undisclosed sum. Gaest.com was founded in 2015 to provide an online marketplace for unique spaces to work, learn, live, and play. Gaest will help Airbnb expand into the professional world by expanding beyond just business travel to team building, offsites and meetings, and relocations for customers. Prior to the acquisition, Gaest had raised $3.5 million in four seed rounds of funding. Its annual revenue is estimated to be $1.5 million.

Airbnb’s Concerns

Meanwhile, Airbnb continues to battle with local regulatory authorities. In the US, New York, San Francisco, Los Angeles, and Las Vegas have begun to regulate the number of days that a property can be rented out as an Airbnb rental. Cities with heavy tourist traffic, such as Barcelona, are restricting the number of rentals that are available in the city.

Competition in the industry also remains high. While there are traditional online travel players like Expedia and TripAdvisor that offer the ability to search for vacation rentals, hotel chains are also entering into the market. Marriott, for instance, is not only focusing on providing hotels rooms that are more homely, but is also offering its own home rental service to travelers. Earlier this year, Marriott announced the launch of Homes & Villas, a higher end vacation rental service available to the tourists.

Airbnb is not too worried about the entry as it believes that Marriott will not be able to offer the unique homestays that Airbnb can offer. It still remains to be seen how the players perform in the coming months.

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