- Airbnb recently closed a funding round valuing the company at $30B.
- Do the valuations make sense fundamentally?
- Would an Airbnb IPO be attractive for investors?
Hotel rentals company Airbnb recently raised over $500M in a fresh funding round, as reported in a form-D filing with the SEC. However, insiders familiar with the developments claim that the company could push the funding figure to $850M. The company is apparently being valued at a gargantuan $30B, up from a $25.5 valuation at the end of last year. With the latest funding round, the company has now raised over $3.2 in private market funding over the last 7 years. However, does the company have the numbers/fundamentals to back up this whopping valuation? This will be a key question on investors' minds in the event of an Airbnb IPO.
Also read: Is AirBnB A Real Threat To Priceline Stock?
Airbnb IPO Unlikely in 2017
Airbnb is unlikely to go in for an IPO in 2017. As per sources quoted on WSJ:
Airbnb has indicated it is unlikely to go public in 2017, one person said, as the company still has many regulatory challenges to surmount before it has a clearer vision of its longer-term growth prospects and costs.
While the company has claimed regulatory hurdles as the reason for pushing back its IPO, the problems could also be its financials and steep valuations, in addition to the huge uncertainty in the global capital markets.
In fact, such has been the uncertainty in the markets that the US IPO market has dried up in 2016. Quoting from Fortune:
There have been 64 U.S. IPOs year-to-date, nearly half the 122 IPOs that had priced this time last year, according to Thomson Reuters data.
But apart from the uncertain global environment, do Airbnb financials have the ammunition to fire the company to a successful IPO? Let's understand further.
Also read: Airbnb IPO: Legal Challenges Ahead
Airbnb reportedly hit revenues of $900M in 2015. Based on Slice intelligence research cited by bizjournals.com, the company grew its revenues 89% YoY in 1H 2016. Assuming that the company can maintain that growth rate through the end 2016, we are probably looking at $1.7B in revenues for the home-rental platform.
Airbnb revenues have grown at an average annual growth rate of 172% between 2010-2015, going from $6M in 2010 to $900M in 2015. Can the company maintain this growth momentum? Well, Airbnb expects revenues to hit $10B in 2020, implying a CAGR of 62% between 2015-2020. The slowdown is understandable given the much larger base of Airbnb revenues.
While the company is definitely growing its top line rapidly, the same cannot be said of its bottom line. The strong top line numbers are yet to pull the company out of the red. The company is still in the red, reporting an operating loss of $150M in 2015. However, the company expects to report and EBITDA of $3 billion in 2020. Coming to the next question, can these projected numbers outgrow the current valuations?
AirBnb Valuations Are Steep
Airbnb valuations have outgrown the fundamentals leading to extremely steep valuations. Airbnb valuations have grown from 3.25M in April 2009 to a whopping $30B in 2016. That's a near 10000X rise in a little over 7 years. Based on the latest valuation of $30B and expected 2016 rev of $1.7B, the company commands a steep sales multiple of 17.6x. In comparison, the biggest online travel agency, Priceline (NASDAQ:PCLN) trades at a 7.4X sales multiple. Marriott, a leading hotel operator trades at a 1.15X sales multiple. Airbnb valuations definitely more pricey than peers in the hotel and online travel space. However, a lot of that premium is also being paid for the growth the company is generating. Based on a $10B revenue run rate in 2020, Airbnb commands a 3X sales multiple. The bigger question is can Airbnb deliver profit margins to justify the steep valuations? Well, Airbnb's history of a negative bottomline definitely leaves a lot to be desired.
Airbnb recently raised a fresh round of funding, which could enable the company to delay its IPO further. The decision to delay the IPO is a wise one. Given the steep valuations Airbnb currently commands, coming to the IPO markets without a stable bottom line could turn out to be a huge drag on the valuations (remember Twitter?). Also, given the rising number of legal hassles the company is getting into with city administrators (Barcelona, San Francisco and New York to name a few), Airbnb could also suffer operational risks, which could take a toll on its growth. Hence, an Airbnb IPO would be an event to stay away from unless the company can demonstrate a stable bottom line performance to back up its steep valuations.
Also read: Our coverage of popular IPO's