Airbnb Takes New Funding At A $US10 Billion Valuation

Brian cheskyGetty Images/BloombergAirbnb CEO Brian Chesky

Airbnb, the service that lets people rent their houses, apartments and rooms over the Internet to strangers, has taken a $US500 million round of new investment, which values the company at a staggering $US10 billion, according to TechCrunch.

It is not a surprise that the fund-raise or the valuation is that high — Airbnb is a transactional app and website through which 11 million people have booked stays in 34,000 cities.

CEO Brian Chesky once said in 2012 he believed Airbnb would fill more rooms every night than the entire Hilton Hotels chain.

While sky-high valuations are no longer rare — Facebook just bought WhatsApp for $US19 billion and Oculus VR for $US2 billion — the difference between those transactions and Airbnb’s new putative acquisition price is that Airbnb actually has a healthy, revenue-bearing business model. (Neither WhatsApp nor Oculus have revenue — yet.)

Airbnb’s revenue is believed to be $US250 million annually, according to the Wall Street Journal.

And anyone who has ever used Airbnb knows that the service is not going to go away. (I recently booked a week in the Bahamas on Airbnb and stayed in a two-bedroom, two-bathroom apartment for about half or one-third of the price that nearby hotels were asking for a regular room.) Airbnb takes a cut from each transaction as the facilitator.

Hotels have reacted by emphasising service and luxury. But it’s not entirely clear that the hotel business yet realises how big a threat Airbnb is. Most hotels compete fiercely on price — and Airbnb essentially undercuts them all.

The company’s next step is to allow users to plan entire trips on Airbnb, not just find a place to stay. It will compete much more directly with hotels and the traditional travel business, in other words.

The plan comes from CEO Brian Chesky, a famously imposing figure:

A former hockey player and bodybuilder with 16-inch biceps, the CEO commands attention. His boomerang grin and slant nose work to sharply focus his attention on you. Rather than turn his head toward me, he physically picks up his chair and pivots it directly so we’re eye to eye. “If you can’t fit it on a page, you’re not simplifying it enough,” he says. And then he creases the ­paper in half for effect. “I told my team they have to put the entire plan on a page this big by next week–same size font.”

Airbnb’s main business challenge is regulatory. Many cities do not allow landlords to rent out their rooms as often as hotels do. In San Francisco, for instance, some renters have found themselves subjected to eviction notices if they rent rooms on Airbnb.

Previously, it became technically illegal to use Airbnb in New York City for a period. That was overturned in the courts after an appeal, however.

The new round of investment was led by private equity firm TPG. TPG also backs Uber, the limousine and ride-sharing app that is a bit like Airbnb for cars. Airbnb has now taken a total of $US826 million in startup funding — making it one of the richer tech startups on the planet.

The new investment makes Airbnb more valuable then several name-brand hotel chains, the WSJ says:

The company could be worth more than Wyndham Worldwide Corp. , which manages 7,500 hotels under the Wyndham, Ramada and other brands, and is valued at $US9.3 billion. Hyatt Hotels Corp. , has a market value of $US8.4 billion.

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