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Is Airbnb a Smart Investment?

Is Airbnb a Smart Investment?

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Short-term rental site Airbnb is one of the most popular startups of our time. The company first caught on in 2008, and it now has over 2 million listings. Airbnb has also expanded to offer more than just accommodations for travelers. With its new “Experiences” category, the company offers everything from cooking lessons to helicopter rides. So is Airbnb a good investment? Read on to find out!

 

How much is Airbnb worth?

 

Airbnb is worth an estimated $30 billion, according to a recent report from CB Insights, though it might be a little less than that when the company officially launches in China in September. Nevertheless, the company’s valuation is up more than fourfold from $1 billion in 2012.

 

Airbnb has raised over $250 million from top-tier venture capitalists and financial institutions.

 

In January 2014, Airbnb raised $100 million from a group of high-profile investors, including Amazon founder Jeff Bezos, eBay founder Pierre Omidyar, and Andreessen Horowitz, the venture capital firm founded by Marc Andreessen and Ben Horowitz.

 

In June 2014, Airbnb raised $112 million from SoftBank Corp. and New Enterprise Associates.

 

Will Airbnb be profitable in the future?

 

The short answer is yes. The company is aiming to make $1 billion in revenue by the end of 2015, and as the market of Airbnb grows, so will its revenue and profit. That will allow the company to become profitable and make even more money.

 

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Is Airbnb profitable now?

 

Well, yes and no. The company has posted revenue of $1.2 billion, and it has booked $40 million in profits over the past 12 months. But the company is still struggling with its lack of profitability. According to Business Insider, the company posted a loss of $44 million in the first half of 2015, though this was a 78 percent improvement from the same period of 2014. Investors were thrilled with these numbers, and the Airbnb stock jumped as much as 10 percent in after-hours trading.

 

What are some risks to consider?

 

As of April 2016, Airbnb had been valued at more than $31 billion. However, the company’s growth potential is limited, especially if it wants to compete with the larger lodging companies. The company is dwarfed by The Priceline Group (PCLN), which has a market capitalization of over $88 billion. Another problem is the company’s sheer size. Though it has more than two million listings, it is still a minuscule portion of the overall hotel and motel market. That’s why if you are looking for a short-term rental, you can probably find better deals elsewhere.

 

On the other hand, Airbnb has done an excellent job at attracting customers. For instance, in 2015, more than 30 million people used Airbnb to find accommodations for their trips.

 

Conclusion

 

For long-term investors, Airbnb’s earnings growth (and the consistent stock price growth that accompanied that growth) is just not enough to get excited about. In the last three years, Airbnb’s revenue and net income have grown at a steady rate of about 20%. However, over the past few years, its revenue growth has declined slightly, although it still shows a respectable 15% CAGR. On the flip side, Airbnb’s net income growth has declined from 25% to 10%, meaning the company’s earnings per share growth is actually negative.

 

Airbnb’s earnings growth will start to increase soon. So sooner or later, more companies will start offering Airbnb-like services.

 

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