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Airbnb has $1,7bn in sales – still any doubts about $2,5bn valuation?

Airbnb growth looks like hockey stick. Look at the nights booked. Say 'wow' to their client base growth. Double check in disbelief their valuation of $2,5 billion [1]. And then uncover truth about their revenue with us.

Startup with the awkward name got 3 million new paying customers in 2012. [2]


And reached 10 million nights booked by July [3].

Now, how do they earn money? And how much (because as a private company they don’t disclose numbers, you know)?

Airbnb client selects an apartment on the website (screenshot), gets confirmation from the owner, prepays the stay, Airbnb accepts the payment, charges its commission, then pays apartment owner and payments’ provider. Done.

Sales

The formula for Airbnb Sales («money in the bank») looks like that.

Sales = number of nights booked * number of nights for an average stay * average cost per night.

Sales in 2012 = 3 million customers * 5,5 nights * $115 per night = $1,7 billion.

It's 3 million, because the company says so (we trust all CEOs more than ourselves). It’s 5,5 nights and $115 per night because Forbes [4] and Business Insider [5] say so.

Airbnb does not wire money directly to apartment owners’. It holds the money at its bank account for some time (Did you know that each $100 million passing through your bank account adds +10 stamina to your ‘VC negotiations ability’? If you disrupt some existing leaders’ business, say, Hilton’s, you hit combo and get extra points.)

Revenue

The downside of this decision is that financial guys do not account this $1,7 billion of sales as revenue.

Revenue = Sales * Airbnb commission

Revenue = $1,898bn * 10% = 190MM

The tricky part is not believing the website (a-ha!) about 6-12% commission [6] on completed bookings, because they also charge 3% for payments, and we’re pretty sure that Airbnb transactions volume did allow it negotiating a lower rate with acquirers.

The overall commission is then 9% (average of 6-12%) + 1% (extra from processing) = 10%.


Airbnb hack table


Let’s get those extra points for frightening established players. Airbnb CEO Brian Chesky said [7] that by the end of 2012 people would book more nights with Airbnb than with Hilton. This is probably some secret password to getting on Forbes cover. 

“The global leader of hospitality” Hilton has 191K rooms worldwide [8].  For 50% load they need to be selling 95,5K nights per day, which makes 34,8MM nights per year. Now, Airbnb sold 15MM in 2012, but they were growing like mad for the whole year and clearly by December surpassed this daily target. Congrats, Brian and team! Combo.

Disclaimer. This post is all estimation based on assumption about a riddle wrapped in a mystery inside an enigma, so we probably got wrong here and there. For any suggestions, please write us an email. In the meantime we’ll continue uncovering truth.


Sources:

[1] http://techcrunch.com/2012/09/26/airbnb-is-raising-a-big-third-round-aiming-for-a-valuation-north-of-2b

[2] https://www.airbnb.com/annual

[3] https://www.airbnb.com/10-million

[4] http://www.forbes.com/sites/tomiogeron/2012/11/09/study-airbnb-had-56-million-impact-on-san-francisco

[5] http://articles.businessinsider.com/2012-03-09/research/31138591_1_booking-fee-airbnb-nights

[6] https://www.airbnb.com/help/question/104

[7] http://techcrunch.com/2012/12/12/cloudera-ceo-mike-olson-by-december-31st-airbnb-will-be-filling-more-room-nights-than-hilton-hotels

[8] http://www.hiltonworldwide.com/portfolio/hilton

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