Recent news in global finance involves AirBNB, the company best known for its service that enables homeowners to rent their houses, apartments and rooms via the internet. In late April, it was reported that AirBNB valuation of $20 Billion after receiving $500 Million in funding. The Wall Street Journal reports the investment amount is closer to $450 million.
The news comes as no surprise to financial experts, who see both the funding and valuation of AirBNB as within their expectations. The company has seen huge success, having set up over 11 million people with accommodations in 34,000 cities through its website and transaction based phone app. In 2012, CEO Brian Chesky stated that he expected AirBNB users to book more rooms every night than the Hilton Hotels brand. Such braggadocio is typical of Chesky, a former hockey player and bodybuilder as well as an imposing business force.
Even as AirBNB receives $500 Million in funding, such staggeringly high business valuations are not uncommon in today’s world. Facebook recently purchased WhatsApp for almost $20 billion and Oculus for $2 billion. The only difference between those transactions and AirBNB’s valuation is that the latter actually bears a financially sound business model with revenue listed at $250 million. Neither WhatsApp nor Oculus can presently boast revenue generation.
AirBNB has a Vision for to Continued Growth
AirBNB’s room booking service is not going away. The business model indicates that the company makes a percentage of each transaction to support its simplified operations, with the rest going to revenue. Hotels and B&Bs have responded by pointing out the advantages of brand recognition, reputation, service and luxury. Still, it’s apparent that this component of the hospitality industry does not appreciate the threat that AirBNB poses. While most lodging companies compete with one another on price, AirBNB undercuts them across the board.
The future holds even more potential for the company after receiving the $500 million in funding. The next phase will enable travelers to plan their entire journey on the AirBNB platform. This positions the business to compete directly with hotels and the typical travel industry players. In regards to the company’s business model CEO Chesky states, “If you can’t fit it on a page, you’re not simplifying it enough. I told my team they have to put the entire plan on a page – by next week – same size font.”
The biggest challenge to AirBNB’s success is government regulation. Many city municipal codes forbid landlords to rent out rooms regularly on a nightly basis. For example, San Francisco subjects AirBNB renters to eviction notices if they book their rooms through the company’s platform. In New York City, it was illegal to use these services until the code section forbidding AirBNB-type service was recently overturned on appeal.
Private equity firm TPG was involved in the transaction wherein AirBNB receives $500 Million in funding boosting the AirBNB valuation to $10 billion. The company has secured $826 million in startup investment, making it more valuable than many of the familiar hotel brands.
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