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The Coming Airbnb Stock Debut — What Investors Need to Know

Airbnb is now the fourth most valuable startup in the world, behind Uber. An IPO is very likely in the not-so-distant future, and it could be one of the biggest debuts in years.

Airbnb, the lodging and lifestyle service company that started in 2008, has been making a lot of headlines lately. This increasing interest is not only from potential customers, but also from investors, competitors, and regulators. The company has exploded in the past few years and now serves over 60 million guests through 2 million listings, in nearly every country worldwide. Airbnb management hasn’t made any public claims about plans for an IPO, but there are some compelling reasons it might be sooner rather than later.

The Airbnb business model

Airbnb’s three co-founders started the company in 2008 and got national attention that same year, when it provided needed lodging options during the 2008 democratic convention in Denver, when local hotels were full. Airbnb has since expanded, with more than 2 million guests worldwide.

On the company’s site, it states, “Whether an apartment for a night, a castle for a week, or a villa for a month, Airbnb connects people to unique travel experiences, at any price point, in more than 34,000 cities and 191 countries.” Airbnb’s business model is to provide the digital platform that connects these renters and buyers, while taking a cut of each transaction. In this way, Airbnb thinks of itself less as a lodging company, and more of a social or e-commerce platform.

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AIRBNB CEO BRIAN CHESKY. IMAGE SOURCE: AIRBNB.

Why regulators are eyeing Airbnb

One of the biggest risks facing Airbnb (and its potential investors) is that regulators are increasingly seeing Airbnb as a way for private owners to become business renters without being licensed to do so, and without paying appropriate taxes on earnings. Some cities, such as San Francisco and New York, are actively finding ways to either limit or prohibit the use of such business models, making rules such as requiring permits for owners who seek to rent, and making it illegal to list short-term rentals less than 30 days. There are now even tech start-ups, such as BNBShield, with the sole focus of catching tenants illegally renting out their apartments. Airbnb hired former U.S. Attorney General Eric Holder as an advisor, which should help the company navigate some of these legal waters.

Regulatory issues aren’t Airbnb’s only risk going forward. New competition from companies such as Roomorama, as well as similar services provided by well-established online travel companies such as Expedia’s Homeaway and TripAdvisor’s Housetrip, also pose threats for Airbnb to continue its astronomical growth rates.

Airbnb’s potential valuation

Over the past few years, Airbnb has exploded not only in service and number of total guests worldwide, but also by funding. Airbnb has undergone multiple additional funding rounds in the past few years, and the most recent one, led by Alphabet’s investment arm, values Airbnb somewhere around $30 billion.

That makes Airbnb the second largest start-up in the U.S., behind Uber. For a little scope, $30 billion is larger than Hilton Worldwide’s market cap of $23 billion, and Marriott International’s (NASDAQ:MAR) market cap of $26 billion, even following the recent merger with Starwood Hotels.

When it finally does go for an IPO

Airbnb CEO Brian Chesky said in an interview with The Wall Street Journal in 2014 that his company was in no rush to go public, saying it would wait until it has a compelling reason to do so. With so much available funding, Airbnb certainly is getting enough cash to not need to go public anytime soon just for liquidity’s sake.

Still, those venture funds are going to want the return on that investment, and since it’s unlikely that Airbnb might be bought by another company at its now incredibly lofty valuation, an IPO is the likeliest eventual exit. So while it’s unlikely that will happen in 2017, an eventual IPO is probably not far off. Airbnb management has predicted $10 billion in revenue in 2020, about 70% of Marriott’s 2015 revenue, even though Airbnb is far younger. Regardless of how rich its valuation is, when Airbnb does finally go public, it is likely to be one of the hottest tech debuts in years.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Seth McNewowns shares of Marriott International. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Marriott International, and TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Drew Limsky

Drew Limsky

Editor-in-Chief

BIOGRAPHY

Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.