Billion Dollar Unicorns: Airbnb Continues to Soar

A recent report by Research and Markets estimates the global vacation rental industry to be worth $100 billion. The US holds the biggest market share with nearly a 25% market share. The report further expects the global vacation rental market to be worth $170 billion by 2019. Billion Dollar Unicorn Club member Airbnb is already seeing strong growth in this industry.

Airbnb’s Financials

For a company that publishes very few details about its business, San Francisco-based Airbnb has seen a significant surge in its valuation. And the growth in valuation doesn’t seem to be stopping soon.

Airbnb earns revenues by charging the property owners a fee of 3% on the property rented and between 6%-12% from the guest renting the property. It does not disclose its detailed performance, but reports suggest that the company ended 2015 with nearly $900 million in revenues. Revenues were estimated at $250 million in 2013. Despite the rising revenues, AirBnB is yet to make profits. The company is planning on turning profitable in the next year. It is estimated to have ended 2015 with $150 million in operating losses. It has expanded its presence in over 34,000 cities across 191 countries globally.

Airbnb has been venture funded so far. It has raised $3.4 billion from investors including Andreessen Horowitz, Ashton Kutcher, Baillie Gifford, China Broadband Capital, CrunchFund, Dragoneer Investment Group, DST Global, Elad Gil, Fidelity Investments, FirstMark Capital, Founders Fund, General Atlantic, Anton Levy, General Catalyst Partners, Joel Cutler, GGV Capital, Glenn Solomon, and Greylock Partners. Its last round of funding was held earlier this month when it raised $850 million at a valuation of $30 billion. In December 2015, it had raised $1.5 billion at a valuation of $25.5 billion. Besides the venture funding, AirBnB has also raised $1 billion in debt from J.P. Morgan Chase in June this year.

Airbnb’s Growth

Airbnb’s growth continues despite the several regulatory blockades the company is facing. In its home town San Francisco, hosts on Airbnb and other similar rental companies are supposed to register with the city before using their services for finding renters. Failure to do so will lead to a new fine at $1,000 each day on companies like AirBnB for unregistered hosts on their platforms.

In Chicago, the city is adding a 4% surcharge to short-term rentals and has mandated hosts to register units. Additionally, there are studies that point out that hosts are making racially discriminatory decisions when it comes to renting their units through the service. And there continue to be cases where people find goods stolen or units trashed after a guest vacates. Airbnb is trying to manage these issues by strengthening its legal team. Earlier last month, it hired former US Attorney General Eric Holder to tackle the anti-discrimination controversy.

Meanwhile, the company continues to take other measures to deliver higher revenue growth. To leverage the Rio Olympics, Airbnb became the official partner with the games to provide alternate accommodation to visitors. It now has over 40,000 listings throughout the city, compared with nearly 20,000 two years ago. Airbnb expects that the games will help generate $25 million in revenues for the hosts in the country.

In summer this year, Airbnb also introduced a smart pricing tool for the hosts. The new service rolls out dynamic pricing tips for all hosts and is estimated to help grow revenues by an average 13% for the hosts. The tool will offer recommendations to hosts based on available demand, supply, features, and amenities offered by the hosts. Hosts suggest a range of rates to the tool and the tool then suggests the best price within that range.

In Japan, Airbnb has launched a new innovation and design company to support urban planning within a community. The division is called Samara and will bring together design and engineering experts from Airbnb to deliver new ideas that will integrate architecture, product design, software engineering, and new economic models. The first model being designed is Yoshino Cedar House in the Nara district. The house will develop architectural features that can build stronger relationship between hosts and guests. It will deliver services like Experiences, where locals can earn a fee to conduct tours of particular sights. The collaboration is expected to help improve economic conditions in the town.

Many investors were waiting for AirBnB to go public this year. But the recent funding round suggests that the IPO may be a while yet. The $850 million round was coupled with a stock buyback and will help Airbnb add cash to support global expansion. The buyback of stock will allow it to cash out longtime employees and reward top talent without the IPO.

Regardless, the market is wanting to cash in on Airbnb’s high value. At $30 billion, the company is the third most valuable private company in the world, after Uber and Xiaomi.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.  Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Photo Credit: Open Grid Scheduler / Grid Engine /Flickr.com

This segment is a part in the series : Billion Dollar Unicorns