Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.
It’s finally 2020, the year that should bring us a direct listing from home-sharing giant Airbnb, a technology company valued at tens of billions of dollars. The company’s flotation will be a key event in this coming year’s technology exit market. Expect the NYSE and Nasdaq to compete for the listing, bankers to queue to take part, and endless media coverage.
Given that that’s ahead, we’re going to take periodic looks at Airbnb as we tick closer to its eventual public market debut. And that means that this morning we’re looking back through time to see how fast the company has grown by using a quirky data point.
Airbnb releases a regular tally of its expected “guest stays” for New Year’s Eve each year, including 2019. We can therefore look back in time, tracking how quickly (or not) Airbnb’s New Year Eve guest tally has risen. This exercise will provide a loose, but fun proxy for the company’s growth as a whole.
The numbers
Before we look into the figures themselves, keep in mind that we are looking at a guest figure which is at best a proxy for revenue. We don’t know the revenue mix of the guest stays, for example, meaning that Airbnb could have seen a 10% drop in per-guest revenue this New Year’s Eve — even with more guest stays — and we’d have no idea.
So, the cliche about grains of salt and taking, please.
But as more guests tends to mean more rentals which points towards more revenue, the New Year’s Eve figures are useful as we work to understand how quickly Airbnb is growing now compared to how fast it grew in the past. The faster the company is expanding today, the more it’s worth. And given recent news that the company has ditched profitability in favor of boosting its sales and marketing spend (leading to sharp, regular deficits in its quarterly results), how fast Airbnb can grow through higher spend is a key question for the highly-backed, San Francisco-based private company.
Here’s the tally of guest stays in Airbnb’s during New Years Eve (data via CNBC, Jon Erlichman, Airbnb), and their resulting year-over-year growth rates:
- 2009: 1,400
- 2010: 6,000 (+329%)
- 2011: 3,1000 (+417%)
- 2012: 108,000 (248%)
- 2013: 250,000 (+131%)
- 2014: 540,000 (+116%)
- 2015: 1,100,000 (+104%)
- 2016: 2,000,000 (+82%)
- 2017: 3,000,000 (+50%)
- 2018: 3,700,000 (+23%)
- 2019: 4,500,000 (+22%)
In chart form, that looks like this:
Let’s talk about a few things that stand out. First is that the company’s growth rate managed to stay over 100% for as long as it did. In case you’re a SaaS fan, what Airbnb pulled off in its early years (again, using this fun proxy for revenue growth) was far better than a triple-triple-double-double-double.
Next, the company’s growth rate in percentage terms has slowed dramatically, including in 2019. At the same time the firm managed to re-accelerate its gross guest growth in 2019. In numerical terms, Airbnb added 1,000,000 New Year’s Eve guest stays in 2017, 700,000 in 2018, and 800,000 in 2019. So 2019’s gross adds was not a record, but it was a better result than its year-ago tally.
This gives modest credence to the idea that Airbnb’s marketing spend boost in 2019 had a positive impact; the company spent more money on marketing, and its gross growth in guests staying during a major holiday event went up compared to the year before.
And yet
Airbnb is a big, valuable company. Precisely how much it is worth, however, isn’t a fully-answered question. The company’s final private valuations look like this:
- November 2015, Series E, tranche two: $24.5 billion
- September 2016, Series F, tranche one: $30.0 billion
- March 2017, Series F, tranche two: $30.4 billion
In other words, one hell of a lot. 2019 taught us, however, that there can be a wide gap between private valuations and eventual public valuations when finally tested in the marketplace (see: WeWork). And since we know that Airbnb is currently running deficits, it’s worth asking if the firm’s revenue base will prove large enough to allow for its slowing growth rate (as we saw before) to not make its valuation hard to defend when it does go public.
Put another way, you can value companies on three factors: revenue scale, revenue growth, and profitability. Speaking loosely, the more of one you have the less of the others you can get by with, rotating around a particular valuation mark. A company worth $1 billion, for example, could have modest revenue, zero profit, and oodles of growth. A different company worth the very same amount of could have oodles of revenue, slim growth, and modest profit. And, of course, a company also worth $1 billion could have oodles of profit, modest revenue, and slim growth.
Airbnb doesn’t have profits, and its growth is slowing. So, how big it is (a measure of possible future cashflows, to some degree) will matter — a lot.
More when we have more data, but now you’re caught up what how I was thinking about Airbnb when I woke up today.
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