Airbnb stock: Why you should invest in Airbnb when it goes public

Some of the biggest business valuations in recent times have been from crowd/sharing companies. When we think of crowd/sharing companies, one huge business entity immediately pop into our heads: Airbnb. Started in the year 2008 by Brian Chesky, Joe Gebbia and Nathan Blecharczky, Airbnb has taken the hospitality industry by storm and is often referred to as the disruptive element for the hotel industry. Now, with investors and management talking about an exit, could Airbnb be the biggest IPO this year?

Airbnb in a nutshell

The idea and concept behind Airbnb is very simple, which makes it easy to catch on as well. Using the website or app, anyone who is travelling can choose to rent a house, guest room, apartment etc. from the ones listed on the platform. It gives the travellers an option to book a place to stay in from any part of the world at any point in time. Convenience at its very best.

Airbnb does a simple job of connecting people with places to rent and people who are seeking out rented places. Anyone having any extra room to spare have also jumped on to the bandwagon to have their places listed.

There are more than 3 million listings available across the world and the company has managed to reach over 191 countries through more than 65000 cities. More than 150 million guests have been using the services provided by the company.

What helped the company gain some traction in the initial stages was the Democratic Convention in Denver back in 2008. When all the local hotels were booked and people still needed to get into the city, Airbnb helped them with lodging.

Can I buy Airbnb Stock before its IPO?

Recent news of Snapchat going public has created lots of buzz amongst investors as to which hot tech startup will be the next to file for IPO. Out of all the speculative firms, Airbnb seems to be the one that’s closest to being Public. There are several investors who are eagerly waiting for this to happen, but buying Airbnb stock is just not possible at this point.

Currently, there is no way to get your hands on Airbnb stock before its IPO (unless of course, you’re a big shot VC with wads of cash to throw at it during a funding round.) For retail average joe investors like us, what we can do is just to follow the news closely. Given the amount of interest that is building before this IPO, the chances of the valuation being stretched are high. This means one has to be extra cautious or you might end up buying Airbnb stock at a premium price.

With that said, we thought i would be great if you knew more about Airbnb’s business model and operations. This can help you take more informed decision on the asking price when Airbnb finally goes public.  Knowing where Airbnb stands in terms of valuation can enable you to buy Airbnb stock at just the right price point.

Business Model

There are 4 basic components to Airbnb’s business model/operations:

  • People with property to rent or Hosts list their houses on the website along with features, aminities, price etc.
  • Travellers search for properties in the cities they wish to visit and choose a house based on things such as price, amenities, location etc.
  • The booking takes place via the website or app, where the traveller pays Airbnb the amount mentioned by the Host along with some charges. (More on that later)
  • On approval of booking of host, the booking is confirmed. Host receives the amount from Airbnb post commissions have been deducted.

How does Airbnb make money? Airbnb connects the hosts and travellers and charges them for using their platform for the transaction. The hosts are charged a flat commission of 10% for every booking that is done from the website. The travellers are charged 3% as transaction charges for each booking. This way, Airbnb has been able to disrupting the entire hotel industry without owning a single property.

Challenges Airbnb will face

Airbnb is not immune from potential risks, just like any disruptive business entity. Of late, several regulators have been keeping a close eye on Airbnb’s operations. Often they point out that private home owners are running commercial hospitality ventures without having the appropriate license to do so. Their other concern is that the home owners are not paying the right amount of taxes on their earnings from these transactions.

Cities such as San Francisco and New York are already figuring out ways to counter the business model, requiring home owners to get license. They are also taking actions such as making it illegal to list a house for less than 30 days without appropriate license.

The threat doesn’t stop at regulators, as there have been a flurry of new competitors for Airbnb. Roomorama is just one newcomer that’s providing competition. At the same time, existing big weights such as Expedia and TripAdvisor are coming up with similar services such as Homeaway and Housetrip respectively.

How will Airbnb be expected to perform given the other recent IPOs?

Though there have been no official statements from the company regarding going IPO, there is enough evidence to prove that an IPO could come sooner than you might think. The company has been doing well not only with its service and volume of guests, but also with funds being poured in by investors.

The company has been valued at $ 30 billion, which is only behind Uber in the startup world. To give you some perspective, the Hilton Worldwide is valued at $ 19 Billion and Marriot International at $ 33 Billion. Starwood Hotels and Marriot’s recent mergers have pumped up their value, with a boost in stock price quickly following news of their merger.

Given Airbnb’s current valuation, it is very unlikely that the company would be bought over (though similar transactions are not unheard of.) An IPO in 2017 therefore doesn’t seem like an unlikely possibility. High valuations, good historical performance and exciting prospects would mean Airbnb stocks could be the next hot cakes that everyone wants a piece of during its IPO. Could Airbnb’s IPO even outstrip recent ones like Snapchat? Let us know in the comments below!