In 2014, accommodation rental platform Airbnb released a new logo — Bélo-a — "the universal symbol of belonging," that brings together "people, places and love."
We at Zacks believe that Airbnb doesn’t “Belong Anywhere” but the Wall Street. Let’s find out why.
The Rise and Rise of Airbnb
Rhode Island School of Design alumni Joe Gebbia and Brian Chesky’s struggle to pay rent in San Francisco led to a global phenomenon called Airbnb in 2007.
They rented out their apartment to local conference-goers to raise money. Within six days of launching the website, airbedandbreakfast.com, they found three renters willing to rent out their airbeds on the living room floor.
The rest is history. The initial taste of success inspired the duo to collaborate with computer programmer Nathan Blecharczyk for designing the website.
Initially, venture capitalists (VC) weren't too keen on Airbnb as they thought that the market for airbed renting was undersized. So the founders resorted to selling limited edition cereal boxes to finance their rental business. Impressed by the founders’ zeal, VCs began investing in the company.
Fast forward to the present. The site has over 2 million listings spanning across more than190 countries. The listings have grown from airbeds to homes, villas, tree houses and even castles! According to Seeking Alpha, over 60 million guests have booked room nights via the site.
Airbnb All Set for Primetime
The most obvious question anyone would ask is how Airbnb raises revenues. It does so by charging the property owner and the renter a commission on the transactions.
As per Seeking Alpha, while property owners are charged a fee of 3% on the rental value, renters pay 6–10%.
Being a privately held company it does not disclose all financials. However, per Seeking Alpha, market reports suggest that its revenues for 2015 could touch a good $900 million from an estimated $250 million in 2013.
Although it hasn’t recorded any profit as of now, according to Seeking Alpha, it is likely to do so this year. Analysts predict that its revenues will touch $10 billion by 2020.
Agreed that Airbnb had a staggering start, but it has improved significantly, and so has investor confidence. In Nov 2015, it raised $100 million at a valuation of $25.5 billion, which skyrocketed from $10 billion in Aug 2014 and $2.5 billion in 2013.
What also works for Airbnb is the increase in sharing economy. While only 1 in 10 U.S. travelers rented entire or part of someone else's private dwelling in 2011, this number rose to a staggering 1 in 4 in 2014, according to data from industry research firm, Phocuswright.
Douglas Quinby, Phocuswright vice president for research, believes "We've seen rapid growth not only in Airbnb but also in other home-rental businesses such as Booking.com (an online travel agency owned by Priceline PCLN and HomeAway (acquired by Expedia.com EXPE. More and more travelers are considering rentals as an accommodations option planning their leisure trips."
As per Quinby, these changes indicate just how conventional private accommodations are becoming in the travel industry. According to the Fremont Tribune, “A nationwide consumer survey conducted jointly by the Travel Technology Association and the Internet Association reported that in 2015, nearly half of all Americans (46%) participated in one or more aspects of the sharing economy.”
However, Airbnb faces considerable challenges from several local governments, which do not allow renting out of residential space for commercial purposes, the hospitality sector and its lobbyists. While some hold the company responsible for the loss of jobs and tax revenues in major markets like New York City, others blame it for the high rents in New York and San Francisco.
Despite these issues, we believe that investors should keep an eye on Airbnb, as it is a company most suited for the digital age. Of course, investors and VCs have taken note, considering that it doesn’t own properties and thus overheads are low.
The company is set for an IPO in 2016, and it will be a hot one. With millions of dollars invested already, a thriving rebranding, and surging popularity among travelers, Airbnb’s IPO is one to watch out for.
For now, invcestors can consider Amazon.com AMZN as it holds a Zacks Rank # 2 (Buy).
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