The “sharing economy” may have just become a legitimate money-making economy too. According to a Bloomberg report, people close to Airbnb have suggested that the online home-rental company turned profitable during the second half of 2016. This comes shortly after investors estimated the company’s value at around $30 billion, making it the fourth-highest valuation among privately-held companies in the world (according to CB Insights). Chances are, the valuation could rise even higher from here, given how quickly the firm is reportedly growing and investing in new growth.
The Sharing Economy and Airbnb: Poised for Growth
Airbnb serves as a platform connecting people in search of short-term accommodations with people listing their homes/properties for rent. The website already has more than 2 million listings across 34,000 cities and 191 countries, which marks explosive growth over the last few years.
The model is rather simple, but also genius: Airbnb hosts the properties and provides search features for the guests, and they pocket 6-12% of the fees charged to guests, in addition to a small fee it charges the hosts. What helps the firm keep its costs low – and therefore potentially boosting profit margins – is that it bears no expenses related to the residences’ cleaning/maintenance. In 2016, the firm’s revenues grew more than +80%, according to a source associated with the firm, as reported by Bloomberg.
The news of its first profit comes shortly after Airbnb embarked on a number of expansion activities. Apparently looking to have its footprint on every aspect of travelling, the startup launched “Airbnb Trips” in November 2016. The “Trips”-enabled app offers restaurant reservations, guidebooks, guided tours from locals, and bookings for food and entertainment events. The service will feature 500 curated experiences/trips across 12 cities. Not just that, the company is also reportedly in the early stages of developing a flight-booking feature, for which it may either purchase data from an external source or buy an online travel agency, as disclosed by associated people requesting anonymity. (According to a Bloomberg report).
Airbnb’s promising performance coincides with U.S. hotels’ dipping number of “compression nights” – nights when hotel occupancy exceeds 95%. According to a Morgan Stanley research, for the first time since 2009 the count of such nights declined year over year 2016, by 17%, when looking at the top 25 U.S. markets with the highest number of hotel rooms. Another report from the MS suggests that the penetration of Airbnb services increased from 12% of travelers in 2015 to 18% in 2016. The uptrend is expected to continue through 2017, according to the research (As reported by Business Travel News). Such reports could be pointing towards the online home-rental firm’s increasing competition to the traditional hotel business, potentially counting towards the startup’s future potential and likely adding to its current worth.
Bottom line for Investors
Despite Airbnb’s regulatory hurdles (such as those in cities like San Francisco and New York which could cap the number of nights each host can list on the website), recent reports of the startup’s profitability could bolster outlook on its potential. Airbnb hasn’t officially mentioned any plan of going public, but when it does, we could expect a solid opening for it on the market, going by recent indications about the firm. Investors wondering what opportunities Airbnb’s growth could possibly hold for their respective portfolios once the company goes public, may need to continually update themselves with the latest news on the firm.
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