Airbnb is going public...

The Airbnb Global Report from AllTheRooms Analytics helps analysts and portfolio managers understand Airbnb’s business performance using our unique Airbnb datasets.

The Airbnb Global Report

Airbnb IPO: The AllTheRooms Guide

Contents

Airbnb's IPO

Pre-coronavirus, 2020 was the year Airbnb planned to go public. These plans were then thrown into disarray when the crisis arrived and markets sold off, with the travel sector being amongst the hardest hit by the virus.

A few months later, short-term rental bookings started to rebound. Despite continuing weakness in air travel, hotel occupancy and OTA booking volumes, short-term rentals suddenly seemed relatively immune to the ravages of the virus and the lockdowns. Here at AllTheRooms we were the first to spot the rebound, and covered it extensively.

Much like Zoom, whose stock raced higher during the pandemic as investors adjusted to a post-COVID world in which everyone works from home, Airbnb found they had a business model that could thrive, virus or no virus. With people increasingly desperate to escape lock downs at home but still scared of the virus, short-term rentals offered an option that allowed social distancing. Short-term rental bookings started to rebound, especially in rural areas.

With the wind in their sails, Airbnb filed for an IPO on the 19th August 2020.

Airbnb's Business Model

Airbnb’s Business Model Involves Two Customer Segments

Hosts – this can be either people who want to offer their entire home, a private room or a shared room on a short-term rental basis, or people who want to host an ‘experience’. Sometimes these are combined.

Travelers – people looking for accommodation for a vacation, business trip or anything in between, who come to Airbnb’s site or app and search for a property they like that is available on the correct dates.

How Airbnb Works in Simple Terms

The Host lists their property/room on the platform and provides key information about their listing, including what price they charge, what amenities the property has, and a description of the property, in addition to information on themselves as a host. Hosts are encouraged to verify their profiles with government-issued ID.

A traveler comes to the site or app, chooses a listing that they like, and clicks book.

The traveler then pays the rate that the host decided plus ancillary charges such as a cleaning fee, a security deposit, and a guest fee.

The host approves the booking (although in the case of instant book, the booking is instantly approved), and then Airbnb transfers the host’s revenue from the booking to the host, taking their commission cut.

Airbnb Fee Structures

Airbnb offers three main commission structures options:

1) Shared Host & Guest Fee – The host pays a service fee of 3% of the booking subtotal (including the nightly rate, cleaning fee and additional guest fee, but excluding Airbnb fees and taxes), although it can vary in other countries and for Airbnb Plus hosts. The guest pays a service fee of around 13% of the booking subtotal, depending on a number of different factors.

2) Host-Only Fee – This option is designed for hotels and hospitality businesses that want to have more control over the final price seen and paid by guests. The host takes on all fees, paying a service fee of between 14-20%.

3) Airbnb Experiences – The host pays a 20% service fee based on the pricing of the experience offered. Guests pay no fee for experiences.

Retention

While the majority of travelers have heard of Airbnb, a challenge for the company is how to make sure users keep coming back.

In order to do this, Airbnb has continued expanding its offering with more unique homes available to rent, better insurance policies, and extra products such as Airbnb Experiences, where travelers can sign up to local experiences for a deeper immersion into their destination during their stay.

The company has made the platform simple to use, with a great interface, Instant Book feature, and plenty more — all of which culminate in an enjoyable user experience and a higher likelihood of returning visitors.

Adding More Listings

So, how does Airbnb convince people to open up their homes to the platform and offer accommodation? For many, the idea of making money from a spare room is very appealing, however, at the same time, many people feel nervous about letting strangers into their properties.

Airbnb’s insurance policy plays a large part in the company’s success in flooding the market with vacation rentals. Airbnb has a Host Guarantee policy which means every property is insured by up to $1 million USD at no additional cost. With the Host Guarantee policy, thousands of homeowners have the assurance that their home will be covered in the event of damages. Unsurprisingly, this has been a significant factor in encouraging hosts to list their place with Airbnb.

Equally, Airbnb’s free-to-list business model means that homeowners have nothing to lose by listing their property on the platform. It’s a great way to convert hosts who are curious about the money they could make but don’t want to commit immediately.

Airbnb Plus

For travelers who aren’t keen on staying in someone else’s ‘homely’ home, there’s Airbnb Plus. This offers accommodation in an Airbnb home that’s more luxurious than your average rental and can be categorized somewhere between a home rental and a hotel.

Airbnb Plus offers high-end properties that have been personally verified by Airbnb for quality, design, and comfort. The properties come with many of the things you would expect to see in a high-end hotel room, such as good quality towels and sheets. They have also been specially-designed to be as visually appealing as possible. Airbnb Plus properties boast great reviews and are known for their attention to detail. Using in-person quality inspection, the company assures that the property is fit to be an Airbnb Plus property.

For travelers who don’t like the idea of staying in another person’s home, Airbnb Plus is a great product that caters to those expecting hotel standards. By introducing Airbnb Plus, the company has found a way of attracting travelers who have previously not used the platform.

Airbnb Experiences

Airbnb Experiences is an example of the company branching out from just selling one product — accommodation — into selling destination-based experiences. As a traveler, if you want to sign up to a city walking tour, go on a food tour around a certain neighborhood, or go dancing in a local club, you can do so through Airbnb experiences.

This is one of the most successful additions to Airbnb’s business model in recent years. Airbnb has revolutionized the travel industry by positioning themselves as a travel experience, instead of solely a functional short-term rental site, which is how the majority of online travel agents are positioned.

Airbnb: Key Metrics

How Many Listings Are On Airbnb?

Airbnb has seen consistent growth in the number of listings over the last 3 years. We prefer to use ‘active’ listings, which are listings which have had at least one booking in the last 365 days and do not have their calendar completely blocked for the next 365 days. 

Throughout the coronavirus pandemic Airbnb active listing growth has slowed, but has not declined by any significant amount. As of August 2020, Airbnb had 5.8 million active listings.

How Many Bookings Does Airbnb Generate?

Airbnb nights booked had been in a steady uptrend with solid year-on-year growth over the last 3 years. 

In 2020, COVID-19 had a significant negative impact on Airbnb booking volumes. Bookings started to rebound in June. As of August 2020, bookings were down 41.3% compared to the same month in 2019. It should be noted that the recovery is very uneven, with bookings in areas of the United States rebounding very strongly and other regions such as Europe and Latin America lagging.

What Is The Average Daily Rate (ADR) On Airbnb?

Average Daily Rates (ADR) is the average price a guest pays to stay at an Airbnb property. ADRs vary widely for different properties, from $10/night for a spare room, to mansions that cost thousands of dollars a night.

In July 2020, there was a significant jump in the global average – probably driven either by higher cleaning fees and/or by hosts looking to capitalize on the post-lockdown boom in staycations. As of August 2020, the global average ADR was $137.

What Is The Average Revenue Per Available Room (RevPAR) On Airbnb?

Revenue per available room, or RevPAR, is a performance metric used in the hotel industry. It’s defined as the ADR multiplied by the occupancy rate, for a given time period.

Intuitively, it’s the amount of money a host should make on average for every day that their property is active and available to book on Airbnb.

The global average RevPAR in August 2020 was $20

Airbnb Revenue: How Much Revenue Is Airbnb Generating?

Airbnb’s fee on bookings is by far the biggest component of their revenues. Experiences still has an almost negligible impact on the company’s total revenue.

Airbnb’s revenues took a massive hit during in 2020 as the coronavirus hit, resulting in the company having to layoff close to 25% of their workforce.

Note that Q3 2020 revenues as of time of writing represent only July and August revenues.

 

How Is Airbnb’s Revenue Split Geographically?

Where does Airbnb make it’s money? 

Europe and North America are the most important markets for Airbnb, with North America typically contributing slightly more. Asia is also an increasingly significant market for Airbnb. 

Asia, Latin America, and Africa had been growing around 50-60% year-on-year before COVID-19, with Europe and North America typically posting slower but solid growth. However, Europe and North America have been rebounding much faster post-COVID.

Airbnb vs. Vrbo: Listings Growth

North America

Airbnb’s main rival in the short-term rental space is Vrbo, owned by Expedia.

While Vrbo has significantly less listings than Airbnb in North America, it tends to dominate in more traditional vacation rental markets, where Vrbo benefits from being the legacy player, having been founded in 1995.

Despite Vrbo’s head start, Airbnb has surged ahead in terms of listings. It’s worth watching how Airbnb fares going forward in acquiring new listings and hosts in these traditional vacation rental markets.

Europe

In Europe it’s a similar story, with Airbnb dominating Vrbo in terms of listings.

The European short-term rental market is far more fragmented than that of the US, with many players commanding sizable inventories in certain markets. Examples include Novasal, TUIvillas and Waytostay.

However, regulation is a bigger obstacle in European short-term rental markets. Airbnb has had a particularly litigious relationship with municipal governments and the hotel industry in France, for example. 

Airbnb: Outlook for Fall 2020 & Beyond

United States

Our forward booking index looks at the forward calendars for all properties in a given geographic region, giving us a unique snapshot of actual bookings made for dates up to 365 days into the future.

This snapshot, taken as of the 21st of August 2020, shows how significant the rebound in short-term rental bookings in the United States has been following the COVID-19 crisis, with the latest snapshot showing forward occupancy rates being close or equal to 2019 booking levels.

Europe

Our forward booking index shows a slower recovery in forward occupancy rates in Europe. Much of this can be tied to the slower lifting of restrictions in many European countries and significant fear of a second wave of infections in major European tourist destinations in countries such as Spain.

Nevertheless, forward occupancy rates in Europe are indeed rebounding, boding well for Airbnb in what is historically the most important region by revenue generated for the company.

Airbnb & Hotels

Airbnb has been looking at departing from its original premise of being a platform for short-term rentals towards offering hotel rooms too.

However, the number of hotel rooms on the platform is still relatively small and contributes a negligible amount to the company’s bottom line. STR estimates global hotel room supply of around 17.5 million rooms, while Airbnb currently only has 81k listings self-identified as hotel rooms.

Airbnb may look to increase the rate at which it’s adding these hotel rooms as a way of driving growth, which could potentially threaten the core business of the OTAs.

Occupancy rates for hotel rooms listed on Airbnb appear to be rebounding at a slower pace than short-term rental listings, possibly reflecting the preference for short-term rentals vs. hotels due to the desire for social distancing. 

However these hotel rooms are far more likely to be distributed through other, more established hotel distribution platforms and OTA sites like Booking, Priceline or Hotels.com, so it’s possible that these hotel rooms are also getting bookings from other sources.

Airbnb: Risk Factors

What are the risks facing Airbnb?

Airbnb’s main competitors – other vacation rental booking sites which command significant inventories – are Vrbo and Booking, with Tripadvisor also providing a vacation rental booking service. 

All three of these competing platforms form part of a larger online travel agency brand (with Vrbo being owned by Expedia). One potential advantage this provides is that being part of a large online travel agency allows significant cross-selling of vacation rental stays to huge user bases. This could potentially limit Airbnb’s growth possibilities longer term.

Another significant risk facing Airbnb is increasing regulation. Booming short-term rental markets have been blamed by local governments and the media for exacerbating the housing affordability crisis, gentrifying neighborhoods, and increasing public disturbances due to vacation rentals hosting large parties (although Airbnb recently capped occupancy at 16 guests to combat this). There are also concerns about taxation – namely that short-term rentals are unfairly avoiding paying the occupancy taxes that hotels have to pay, and that many hosts aren’t paying taxes at all. 

Airbnb has taken various steps to ameliorate these issues, including lobbying local governments on the economic benefits that increased tourism can bring to cities, collecting taxes themselves on behalf of the state, enforcing short-term rental laws, and sponsoring housing affordability initiatives. Time will tell if that is enough to avoid further regulation which could inhibit the company’s growth.

Airbnb's IPO: The Valuation

As the impact of COVID-19 began to become apparent, Airbnb’s private valuation dropped from $31 billion (as of it’s last funding round in September of 2017) to $18 billion as part of a $1 billion financing deal announced in April 2020. 

What valuation will lead underwriter Morgan Stanley suggest for the IPO? It seems likely that they will aim for a number higher than $18 billion, as that figure came in April 2020, which was arguably when the travel industry seemed most doomed by the coronavirus. With Airbnb’s bookings rebounding considerably since then, it makes sense that the bankers pricing this deal will aim for a more aggressive valuation.

Even if they did proceed with a valuation of $18 billion, that would place them second only to Booking amongst the major western OTAs in terms of market capitalization and in terms of revenue multiple.

Revenues (TTM) Prices/Sales (TTM) Market Cap 06/30/2020
Booking
$11.3B
5.8
$65.2B
Airbnb
$4.2B (Estimate)
4.3 (Implied)
$18.0B (Last Financing)
Expedia
$9.1B
1.3
$11.6B
Tripadvisor
$1.1B
2.3
$2.6B

Figure 1: Airbnb and comparables – trailing twelve month revenues, price/sales ratio and market capitlization. Airbnb revenue is AllTheRooms estimate.

However, the world has changed since June. Travel, and in particular short-term rental bookings, have continued to rebound significantly, while hotels have continued to struggle. 

Most of the comp set shown above also have exposure to short-term rentals. Booking has a significant vacation rental booking platform, and so does Expedia via their Vrbo brand. Tripadvisor was actively trying to sell their vacation rental business as of March.

With the rebound, revenue multiples for the OTAs have improved, which should have implications for Airbnb’s IPO valuation. Assuming Airbnb’s revenue multiple has increased by a similar magnitude, that might put the IPO valuation closer to $22 billion.

Price/Sales (TTM) 06/30 Prices/Sales (TTM) 09/01 Market Cap 09/01
Booking
5.8
6.9
$77.5B
Airbnb
4.3 (Implied)
5.2 (22% Higher)
$21.8B (Implied)
Expedia
1.3
1.5
$13.8B
Tripadvisor
2.3
3.0
$3.0B

Figure 2: How market capitalization and price/sales ratios have recovered for Airbnb’s peers since June 2020. Using these latest ratios could imply that Airbnb will aim for a valuation of around $22 billion.

Could Airbnb try for an even higher valuation? 

While recent market gains have inflated the revenue multiplies of many technology companies, the main factor that will influence the multiplies Airbnb can achieve is the market’s expectations of the company’s recovery post-coronavirus and future growth trajectory.

Should Airbnb be able to quickly recover 2019 levels of revenue (Estimated at $5.3bn), which looks increasingly likely, then the potential valuation starts to head towards $30bn.

Revenues (2019) Price/Sales (TTM (09/01) Implied Valuation
Airbnb
$5.3B (Estimate)
5.2
$28B

Figure 3: How Airbnb’s valuation might look if the market discounts the impact of COVID-19 and focused on pre-virus revenues, with the estimate multiple as of the 1st September 2020. This would result in a valuation of $28 Billion.

Looking longer-term, a key driver will be listing growth. 

Even before COVID-19 hit, listing growth appeared to be slowing, and it’s possible that this trend will continue. On the other hand, short-term rentals increasingly look like the accommodation choice of the future. Short-term rentals, which easily allow for social distancing, represent an accommodation option that will prove relatively popular vs. hotels as long as fear of COVID-19 continues. Airbnb’s new rigorous cleaning standards have also helped in this respect. 

Another trend that suggests Airbnb’s listing growth will continue in the wake of COVID-19 is that homeowners might be increasingly open to putting their property on the platform during periods of economic contraction as people seek supplemental income to help cover mortgage expenses, or to plug gaps in household budgets caused by job losses.

Demographics also favor the short-term rental industry. While older generations still typically opt for hotels when traveling, younger people consistently prefer the experience of short-term rentals, and this demographic will make up an increasingly large share of travel spend.

Further adoption of short-term rentals would help Airbnb grow their listings and grow the addressable market of travelers to market these listings to. If the market buys into that growth story, we could see an even higher multiple for Airbnb, and a valuation above $30bn.

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