Clearly a great company in many ways, but if I attempt to quantify how great in terms of a reasonable market cap, I get maybe $30B, not $100B.
Does anyone have a plausible model of how Airbnb can ever make over 5x more revenue than it’s making today? Is the $100B market cap building in an assumption that it’s going to invent new business lines and push them through its distribution channel, or what?
Top line needs to keep growing 30%/yr for next 5 years, then reach a stable state of 30%/yr earnings+growth yield...
Then if that optimistic scenario comes true, congratulations, you can expect a modest 10%/yr yield investing at $100B today. I believe that’s roughly the math.
For the past few years they've been getting into longer term rentals. Imagine as a landlord you could just hire AirBnb to manage your rental house, and they could handle making it short or long term based on demand, managing the whole thing, doing leases and buying furniture as necessary, etc.
Basically if you own a property you say "Hey AirBnb, use this to make money and give me some of it".
That is a huge addressable market, and one that is adjacent to their existing market and only getting bigger.
I found my rental on Zillow. Imagine you could hire Zillow to manage your rental house... it's an interesting idea, yet Zillow is only valued at $11B. Why not say Zillow is $100B because that's such a cool hypothetical opportunity? Because cool opportunities need to be valued at low valuations until they're more validated, so that the investors get a 100x upside if they succeed, not 10%/yr yield as the bull case.
I mean, yes, that would be great, but Airbnb do very little around the management end of things - they take bookings, manage bad situations, they provide a unified listings and ratings platform, and they provide flexible management tools - but the control is all in the hands of the host, and the advice Airbnb gives (“Opportunities”) such as “Have you considered allowing one night stays?”, “Allow free parking!” is generally in Airbnb’s interests, not the hosts’.
So, while it’s a market they could address, they don’t seem to be heading in that direction, rather, more optimisation of the current model, adjacent services (experiences, possibly dining from some mood music I’ve heard from them), and an increased focus on the higher end travel market, where margins and commissions to be earned are greater.
So, at the moment, it’s more “Hey Airbnb, I’ll use this to make money and I’ll give you some of it”, and I can’t see how they could pivot to providing a full service. Who gets called when the boiler breaks? Who handles the guest who broke a light-switch and is now in the dark? Who helps the guest who can’t figure out where to park in an unfamiliar place? The list goes on, but I think it’s these “last mile” deliverables and expectations that prevent them from getting deeper into hospitality management.
That is very interesting. Do you have a link to more info about this? The only thing I could find was where they advertise their third party property management partners, not where they do it themselves. The service you describe could be incredibly attractive and have huge potential.
Right now their platform just lets you rent for longer terms, but what I'm saying is that they could get into property management as a way to continue growing.
That's not a tech business though, you need local cleaners and handymen and locksmiths and phone lines and invoicing and... obviously that can get subcontracted, but that bites into margins and service quality.
If I were a property owner I'd prefer to build a relationship with a local business managing hundreds of apartments than an online multinational support portal based giant.
As someone who has been managing properties for 25 years, I'm well aware of that. But it's also not a far leap from "rent this house for a month" (which they already do) to "rent this house for a year".
Earnings-based valuations are so 20th century. The way to justify $100B market cap today is "I can sell these shares to someone else at $120B valuation next year".
Line goes up is the motto for the 2020s, and assets are valued on everything but actual earning potential.
It's a bet on margin expansion + growth. It's quite reasonable that ABNB could achieve 30%+ operating margins at scale. That along with some modest growth would mean a $100b valuation is on the higher end of reasonable, but not entirely unreasonable given the company's moat and potential.
Also if they reach that level of profitability you have to factor in things like buyback programs which for big tech companies tend to be very healthy. With buybacks the valuation doesn't necessarily need to expand for you to make money on your investment.
This is just my opinion, but I tend to think it's better to over pay a little for quality companies because at worse you might buy something that's a bit overvalued, but over the long-term your investment will probably still work out well. If you look for companies that are cheap you often buy trash and in those cases you can end up with far worse returns over longer periods of time.
For what it's worth I've been looking to invest in ABNB for a while and although I don't think the valuation is too unreasonable the risk/reward still isn't there for me personally.
I agree with you. I think you are picking up on the fact that interest rates have been so low for so long, and people are looking for returns that they are just speculating/gambling. It's commonplace to find unicorns or popular brands over valued on fundamental analysis in today's stock market.
That said fundamental analysis is pretty absurd if you process that really all most people are getting is intrinsically a meaningless vote/s as a shareholder. Analysis on fundamentals feels like being stuck on the gold standard. It sounds good till you think about how golds value is speculative in and of itself.
You can be a self proclaimed "king of valuation" like Aswath Donodaran and claim that Airbnb is worth 30B, but the market says otherwise. Aswath was wrong on Amazon for his entire life, yet he still acts like he is the king. If you're so confident in your 30B valuation of Airbnb, put your money where your mouth is and short it and show us like the people on r/WSB do.
No one can have a different opinion on a valuation from the market?
It's unreasonable to challenge everyone who has a different valuation to short the stock especially since even the market's valuation can swing wildly from day-to-day.
What's the valuation of a popular stock like Gamestop? Ask ten different analysts and they will probably give ten different valuations based on different reasonings.
If no one came-up with a different valuation then everyone would just pile on index passive investing but that isn't the case and active investors usually see a different valuation from the market.
TLDR: Normal for people to have different valuation from the market and weird to get so confrontational over someone having a different opinion.
Does anyone have a plausible model of how Airbnb can ever make over 5x more revenue than it’s making today? Is the $100B market cap building in an assumption that it’s going to invent new business lines and push them through its distribution channel, or what?
Top line needs to keep growing 30%/yr for next 5 years, then reach a stable state of 30%/yr earnings+growth yield...
Then if that optimistic scenario comes true, congratulations, you can expect a modest 10%/yr yield investing at $100B today. I believe that’s roughly the math.