
Ahead of IPO, Airbnb achieves profitability for second year in a row - pseudolus
https://techcrunch.com/2019/01/15/ahead-of-ipo-airbnb-achieves-profitability-for-second-year-in-a-row/
======
gringoDan
They're often considered similar businesses, but intuitively it seems to me
that, long-term, Airbnb will be valued higher than Uber and other ridesharing
companies.

Home rentals seem to be simpler market to operate in than coordinating real-
time supply and demand between drivers & riders. Additionally, Uber seems to
be facing issues on the driver side of the business - they have a $650 driver
acquisition cost & a 12% monthly churn rate [1].

It seems to me like this is the economics problem of a return on capital
(Airbnb) vs. return on labor (Uber, etc.) playing out in the on-demand space.

[1] [https://seekingalpha.com/article/4231786-will-wall-street-
sh...](https://seekingalpha.com/article/4231786-will-wall-street-show-uber-
patience-amazon)

~~~
conanbatt
What im not sure about is Airbnb's moat. They have a great brand name and all,
but their service is very limited: 15% is a very large cut to take on these
transactions. What prevents another company from doing the same at 12% and
costing 50% to operate?

~~~
gringoDan
Nothing prevents another company from doing that, but all of the hosts &
guests are already on Airbnb. Two-sided marketplaces are very difficult to
start, but once they have some momentum, it's even more difficult to unseat
them.

Look at Craigslist - terrible UI, hundreds of startups have tried to challenge
it in the past 15+ years, and yet it's still my go-to when I need to sell some
old furniture.

~~~
conanbatt
Craigslist has a fantastic moat: they are insanely operationally efficient. To
make more money than craigslist at a lower cost is virtually impossible.

The real entrance cost to becoming a host in airbnb is not airbnb, its having
a house. And a host will use airbnb or whatever to keep the appartment
occupied. It can absolutely be commoditized, much like Lyft and Uber have. A
service that posts your apt in multiple websites would make that permanent.

Today they must own the demand side: i have never seen something become so
popular with no little ads (particularly in argentina, it was incredible to
see it going from 0 to ubiquitous in 2 years). But demand on apartment rentals
is _incredibly price sensitive_ , demonstrated by the competition airlines
have.

~~~
asteli
I have friends who worked at Craigslist, and was astonished to hear them
describe a team of IIRC 35-40 employees. They have somewhere around 50 now?
Makes you wonder what those 3k+ employees at Twitter all do.

~~~
gammateam
A lot of companies have an affinity towards jobs numbers, and derive benefits
from the local municpality by being able to print job numbers

It simultaneously helps the organization’s tax efficiency and MAYBE something
interesting gets developed

------
warp_factor
I'm a regular user of Airbnbs AND hotels.

I usually prefer staying in hotels and will look for Airbnb only as a second
choice.

Reasons are:

\- Price is usually higher on Airbnb.

\- Airbnb crazy fees for multiple people, cleaning scam, outrageous service
fees etc.

\- Inconvenience to not have a 24H reception where I can get my keys.

The real genius of Airbnb is that they convinced a lot of people that they
shouldn't look for Hotels anymore, which sadly is what a lot of my friends are
doing (automatically looking for an Airbnb).

~~~
atombender
They are different experiences. AirBnB can give you an entire place to
yourself, complete with a fully equipped kitchen, multiple rooms, facilities
such as a pool, balcony, and so on. An AirBnB is often located where people
actually live, not in the middle of a busy downtown.

With a hotel, you get... a hotel room. There are some great hotels out there
that stand out in many ways, especially if you're very wealthy, but your
average hotel is very average. Generic interior design, generic wall-to-wall
carpeting, generic wall art, a mini fridge where a soda costs $10, and some
kind of weird desk/table/cabinet setup that's mostly home to a lonely-looking
Keurig machine and an ice bucket.

I can't speak for anyone else, but I genuinely don't _want_ to visit a hotel.
The only time I'd be interested is if I'm staying 1-2 nights for a business
trip or something where the only purpose is to have a place to sleep and store
one's property.

~~~
parent5446
Good hotel still have pools, can be located outside of downtown, and sometimes
even in-room kitchens (if that's what you want). They also have maid service,
room service, and a front desk.

The only advantage you get from an AirBnB is a unique facade, paired with
having to clean up after yourself and possible fire and health code
violations.

~~~
briandear
Good hotels also overcharge for parking, have slow, sketchy WiFi, charge $10
for a bottle of water and every person you encounter requires a gratuity. I
like hotels but they can be annoying and everything in the hotel is overpriced
and designed to squeeze your wallet. There is no excuse for a bottle of water
that costs $10 when the same bottle at the 7-11 outside sells it for $1.99.
Even worse are hotels that charge a mandatory “resort fee.”

~~~
parent5446
You're just going to bad hotels. Every hotel I've stayed at in the US in the
past quarter (around six of them) had ~16 Mbps free Wi-Fi, complimentary water
bottles in my room each day, and free parking (with the exception of hotels in
Manhattan or the likes).

I'll admit that gratuity is annoying, but that's a cultural problem with the
US, not something specific to hotels. We just happen to live in a country
where every person who serves you is expecting a tip. And to be fair, if I was
staying at an AirBnB that for whatever reason had housecleaning or other
service, I'd probably have to leave a tip there too.

------
matchbok
Amazing what a company can do when they ignore regulations and simply extract
wealth out of our communities. 80% of their profit comes from huge corporate
listings yet they advertise themselves as a "home-sharing" site. Nonsense.

~~~
longerthoughts
> they ignore regulations and simply extract wealth out of our communities

Can you elaborate on this?

~~~
Zimahl
I'm not the person you are asking but I'll lay out how I understand this
argument from what I've read about the housing market in Portland, OR, which
has a big housing crisis right now.

Available housing, apartments, condos, etc, is being eaten up by short-term
renters. The price of short-term rentals are more expensive than long-term
rentals, but due to so much inventory not being free for long-term rentals,
the price for long-term rentals has gone up a lot. This is the same inflation
that we see in the expected vacation destinations but in non-traditional
locations, like Portland and it's suburbs.

AirBnB is supposedly built to empower individuals to post a rental here or
there. What has been found is that it has enabled and encouraged individuals
and companies with large inventories to convert long-term rentals into short-
term ones. And that 15% that AirBnB takes is simply passed onto the consumer -
which then affects the price of long-term rentals.

~~~
parthdesai
Ditto for Toronto

------
adventured
It's going to be interesting to watch Airbnb IPO at just below the valuation
of Priceline.com / Booking Holdings, while Priceline has 3x the revenue and
50-100x the profit. That's a helluva bet on Airbnb still having immense growth
left in the tank, as the IPO valuation is already pulling at least five or six
years of growth forward.

~~~
notahacker
I also have a sneaking suspicion that whilst AirBnB have undeniably executed
well, Booking.com is at least as well placed to go after AirBnB's market as
the reverse (AirBnB-type rooms, apartments and villas at competitive prices do
exist on Booking.com albeit in much smaller numbers, they also have a strong
brand and hosts aren't tied to a single platform).

The other interesting comparison point is Sabre: completely the opposite end
of the distribution scale and not a rapid growth company, but they're
significantly more profitable than AirBnB at a tiny fraction of the valuation
(and have an excellent moat)

~~~
ben_jones
The difference to me as a consumer is that Booking has commoditized its
customer support to an infuriatingly low quality. Admittedly I don't use Air
BnB often but I will go miles out of the way (literally and figuratively) to
avoid dealing with their systems requiring "travel insurance" for what used to
be simple customer service requests.

~~~
distances
What kind of customer service requests are you thinking of? As I've used
booking services quite extensively, but never actually had any need to contact
customer service.

------
rayvy
> "For starters, Airbnb says it was profitable on an EBITDA (earnings before
> interest, taxes, depreciation and amortization) basis for the second year in
> a row in 2018."

Not sure if this is financial engineering or if they're actually profitable,
but I'm so curious to see how Wall St responds to this "profitability",
especially since growth plays (e.g., FAANG) just cratered in Q4'18.

Not to get too involved in the dichotomy but I'm interested to see if AirBnB
plays like a Snapchat (i.e., tons of hype then gets killed in the public
markets), or more like a Dropbox (i.e., takes a bit of a haircut but share
price remains fairly stable).

~~~
the_watcher
"profitable on an EBITDA basis" is about as mainstream a finance metric there
is outside of the basic GAAP metrics (and many regard EBITDA to be more
reliable than GAAP).

~~~
Traster
I think We Work did a great job of destroying mainstream understanding of
EBITDA with their 'community adjusted EBITDA' which took a well defined term
and made it part of completely meaningless term.

~~~
the_watcher
Yes, "Community-adjusted EBITDA" is a nonsense metric. That said, it is not
EBITDA, and given that WeWork is still private, I don't see any reason to
believe the average person has had their conception of EBITDA irreparably
damaged by it (or even impacted at all).

------
refurb
Profitable by EBITDA could be profit of $1.

Current valuation? Who knows, but I see ~$30B being mentioned in a few media
reports.

Assuming that AirBnB eventually becomes an enormous, stable, established
company with a P/E ratio of ~15, that would mean ~$2B in _profit_ per year.

Will be interesting to see if they achieve that!

~~~
epa
What's wrong with a $1 profit? Sounds like sustainable tax planning to me..

~~~
craftyguy
> What's wrong with a $1 profit?

It's hard to react to unforeseen conditions in the market and/or grow the
company when you have no war chest. You could borrow more money, then you'd no
longer be 'profitable' for at least some amount of time.

~~~
bognition
So i've heard this refrain for years to come but then there are so many
counter examples. Amazon for one. They've never posted a profit yet they've
managed to react and out maneuver most companies with sizable war chests.

~~~
ceejayoz
Amazon has definitely posted profits.

[https://qz.com/1341589/amazon-can-make-loads-of-money-
when-i...](https://qz.com/1341589/amazon-can-make-loads-of-money-when-it-
actually-feels-like-it/)

------
zethraeus
Can anyone here speak to AirBnb's continued growth. Rumors say it's plateaued
and even public articles suggest the same
[https://skift.com/2018/11/14/airbnbs-growth-is-slowing-
amid-...](https://skift.com/2018/11/14/airbnbs-growth-is-slowing-amid-
increasing-competition-from-booking-and-expedia/)

~~~
conanbatt
I've found the things like ""experiences" and related offerings to be a red
flag over their capacity to grow or keep their advantage.

Still, they are killing it, truly.

~~~
kccqzy
I've had an Airbnb "experience" and it's literally just a local tourism
company doing a neighborhood tour. They existed way before Airbnb had
experiences. It's a convenient way for them to advertise and facilitate a
transaction.

------
blunte
Consider that Airbnb is more than 10 years old and has received (hundreds?) of
millions in investment, and only now after a decade is profitable.

This is something like a human child, even including the rule-skirting and
risky behavior that sometimes leads to opportunities that others don't have (a
practice that has also helped Uber become dominant).

So I wonder what the business world would look like if we treated more
businesses with a longer term support and nurturing mentality... would we have
more success?

Even some of the pivots and direction changes of Airbnb are reminiscent of a
growing human changing hobbies or finding their balance of skill + motivation.

I suspect a good part of the success (measured in multiple ways) of Silicon
Valley is due to this finding and support that elsewhere is unmatched. Banks
certainly aren't supportive parents, and the stock market is the school bus
bully.

------
aboutruby
Valued at $31 billion in 2017, raised $4.4 billions.

Probably at least worth between 50 and 100 billions now, I would say $80-$120
billions.

YC will be funded for a couple centuries with that IPO.

~~~
calgaryeng
Just an FYI from a native english speaker - sums of money do not use the
plural version of the value unit.

i.e. should be "raised $4.4 billion" not "raised $4.4 billion _s_ "

~~~
hammeiam
I would debate the phrasing of that answer. The value unit ($) is implicitly
pluralized. Fully written out, that phrase would be "four point four billion
dollars". The value unit is pluralized, but the numbers are not pluralized.

------
swlkr
This may be off topic, but is there a place I can go to see when IPOs are
scheduled?

~~~
phonon
Bloomberg terminal ECDR keyword.... or [https://www.marketwatch.com/tools/ipo-
calendar](https://www.marketwatch.com/tools/ipo-calendar)

------
neals
I think it's a smart time to IPO now that governments are catching up and
starting to regulate against this type of activity.

------
thisisit
This article seems to be just a marketing push before the IPO. As an investor
it doesn't tell me anything. Profit can mean many things, especially when the
non-GAAP measure is used. Tech IPOs tend to have lot of stock options cost
associated and non-GAAP measures tend to hide them.

------
vizzah
Most properties you can book on Airbnb are also available on Expedia's
HomeAway. And it's already publicly traded. Also many of the same apartments
are advertised on Booking.com. Both of those services were running before
AirBnb came. So Airbnb's main advantage is that it made short-term rentals
more consumer friendly and populated the idea to hosts, who might not have
done it professionally before (which, if you ask me is a bad thing, as I've
checked in into so many properties run by hosts who have no clue how to
provide B&B services).. anyway.. Airbnb IPO? Yawn.

------
xemdetia
Does anyone know if this was due to a trim the fat internal cost cutting in
classical MBA form? This sounds like more trying to stoke interest into the
IPO. Other than IPO shenanigans they have felt like they are in general
decline in interest from my local scope and the only successful ones I have
heard of are people that genuinely need a houseworth of space for two weeks or
more internationally.

------
bcx
Is profitability necessarily a good milestone? Wouldn't it indicate that
AirBnB has reached a local growth maxima and doesn't know where to invest the
rest of its huge amount of cash effectively to generate more returns?

------
wuschel
It would be worth looking into the details of the numbers here, how
profitability was actually achieved.

On a mobile here - did anyone look out for financial statements?

------
justadooda
I plan on shorting Airbnb once it IPOs. It will only go down in the short
term. Regulations were at an all time low and will slowly ramp up. For better
or for worse, these regulations will hurt Airbnb.

I'd be curious to hear from anyone who seriously thinks Airbnb will be able to
achieve substantial growth in the next 5 years, given the increasing
likelihood of a slowdown and more regulations from large cities.

~~~
ianhawes
I will sell you the puts myself. You're ignoring a massive market for vacation
rentals outside of major metropolitan areas that AirBnB has conquered from
craigslist.

The risk for regulation has passed as citizens see AirBnB as an accepted
reality. Hotels aren't happy, but rightfully see AirBnB as a competitor.

~~~
jedberg
> The risk for regulation has passed as citizens see AirBnB as an accepted
> reality. Hotels aren't happy, but rightfully see AirBnB as a competitor.

I agree with your overall, but I'm not so sure I agree with this part.

South Lake Tahoe just passed a voter initiative in November that bans AirBnB
(and VRBO) except for a few places right next to the major hotels. It was, not
surprisingly, heavily supported by the major hotels.

~~~
the_watcher
South Lake Tahoe is exactly the kind of market that OP isn't talking about (if
I'm reading it correctly). There are tons of places where hotels simply aren't
dominant.

A good framing for me: If Airbnb were just looking to compete with hotels,
this wouldn't be that exciting of a business, even if I knew they could
survive. What's exciting about Airbnb is that they're looking to win in places
that hotels aren't.

~~~
jedberg
Yes and no. There are three big hotels, but VRBO and AirBnB have been the
dominant way to get housing in Tahoe forever, unless you're a gambler.

~~~
the_watcher
That can be true at the same time that "winning markets like South Lake Tahoe
aren't the markets most critical to their growth" is true.

------
dawhizkid
Has anyone bought a property to exclusively rent via AirBnB? Looking to buy
something with this in mind.

~~~
onlyrealcuzzo
Several of my friends bought places in Palm Springs to do this in 2012-2015.
They've made an absolute killing so far. But who knows what will happen if
another recession comes.

~~~
the_watcher
I grew up there and my dad owns a real estate brokerage. I can confirm that
this is pretty common, and it's a great example of Airbnb making a market that
has existed longer than I've been alive (vacation rentals in a resort city)
orders of magnitude more accessible to the average person. I've seriously
considered (to the point of starting to model it) buying something that can
credibly be called "walking distance" to the Coachella venue and seeing how
much of the of the mortgage in that month (two Coachellas + Stagecoach) + the
tennis tournament in March.

~~~
dawhizkid
Wow, didn't realize how inexpensive homes are there (vs LA, SF at least. I see
2 bedroom/2 baths for under $200k..tempting!

~~~
niij
Compared to some of the most expensive housing in the USA? I'd bet more 2bd
2ba homes are sold <200k in the USA than the other way around by a long shot.

~~~
the_watcher
The difference is that Palm Springs is a resort city with something like 150
golf courses, is 2 hours from LA, 2.5 hours from San Diego, 1.5 hours from
Orange County, and even has Big Bear ~1.5 hours away if you like to ski in the
winter without having to make a weekend trip (it's not great snow, but it is a
mountain).

