Morning Markets: Airbnb is large, rich, and still growing nicely. Why won’t it go public?
Airbnb, a richly valued private company long-expected to go public, is seeing use of its platform rise by about a third year-over-year, recent reporting indicates. The unicorn also sports a strong balance sheet. In contrast to the recent Uber and Lyft IPOs (more here), not to mention The We Company’s twisting S-1, Airbnb appears to stand on firm footing.
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The company’s gross bookings grew 31 percent year-over-year in the first quarter of this year to $9.4 billion (the dollar value of spend on its platform; the company collects a percentage of the total). That growth came after the Airbnb’s revenue, a different metric, grew by 40 percent in 2018, according to reporting from the WSJ and Reuters.
The publications also reported that Airbnb had $3.5 billion in cash (and equivalents, we presume) at the end of the first quarter, giving the firm the sort of war chest that 2019’s late-stage market can explain. (Slack’s piggy bank was similarly stuffed before its direct listing.)
And the company has managed to grow as large as it has while generating positive adjusted profit, the Journal notes:
Airbnb previously has said its finances were positive on the basis of earnings before interest, taxes, depreciation and amortization in both 2017 and 2018. This is a different metric than profitability.
It’s an impressive set of metrics. Of course, for a firm valued at around $30.5 billion (post-money following its 2017 Series F), we expected something good.
But gross bookings expansion and adjusted profit are pretty far from GAAP fundamentals. What about, say, revenue?
If Airbnb saw $9.4 billion in gross bookings in Q1 2019, what percent of that did it take home as revenue? That’s a very good question, and it’s not simple to estimate.
Airbnb has a few ways that it makes money, including charging hosts, charging folks renting space on its platform, and accruing fees related to its Experiences product (things to do, not just places to stay).
Even inside those groups there is variance. We can’t tell from where we sit what Airbnb’s average guest service fee is for example. (The firm notes that it is “typically under 13% of the booking subtotal.”) And we similarly cannot tell what the average host service fee is (the company states that it is “fee is 3% for most hosts,” but it may drift higher in some cases).
We also do not know what percent of Airbnb’s bookings, if any, operated under the company’s new host-only fee structure for hotel-like products (which Airbnb charges “from 14% to 20%” for, or more) in Q1 2019, the period for which we have the bookings figure. Airbnb also takes 20 percent from Experiences revenue.
How do you sum that up without an income statement? You can’t, but we can hazard a few guesses to get our hands around the company’s directional scale.
Let’s presume, in the first quarter, Airbnb only generated revenue from bookings that had split fees between hosts and renters. That’s likely the bulk of the firm’s revenue in the first quarter. Using just the three percent host fee rate, Airbnb’s revenue for the quarter came to $282 million. That’s a lot!
From here the situation gets harder to parse. For every one percent of gross bookings that you calculate the firm takes, its Q1 2019 revenue rises by $94 million. That’s insane. And it helps us understand why the firm is worth so much money. (Translation: scale.)
The only odd thing that I can summon out of the situation is that Airbnb is only profitable on an adjusted basis. That’s nearly always the same thing as saying that on a GAAP basis, counting pesky costs like share-based compensation, it is not profitable. So what is the company spending all its nice money on? Surely its revenue sports pretty good gross margins, leaving it with plenty of gross profit to spend on its operating costs?
And that’s why I’m hesitant to estimate Airbnb’s revenue today, even using our new facts about its size. Looking at the plain-text of the company’s fee policy, Airbnb looks like a behemoth. But surely it can’t spend all that money and more (on a GAAP) basis just running itself, so I presume my internal revenue calculations for the firm are off, somewhere.
This is a company that can go public today. It would find welcome markets and open arms. So why wait? No one else seems to be.
Illustration: Dom Guzman