Could Airbnb go public at $105 a share?

Leigh Gallagher, author of "The Airbnb Story" (Houghton Mifflin 2017)

At what price might Airbnb go public?

There’s been scant research published on its possible valuation, with the exception of the work of two smart people: Leigh Gallagher, author of The Airbnb Story (Houghton Mifflin 2017), and Santosh Rao, head of research at Manhattan Venture Partners, which specializes in private, pre-IPO companies.

Rao, for his part, has published one of the few thorough public research reports on Airbnb, and he attempts to value the company in a conservative way.  He contends its IPO might fetch $105 per share, for a $31.6 billion total valuation.

How did he get to that number? More on that later. First, a bit on Gallagher: She grew up in Media, and her parents still reside there.

“I’m a proud child of the Philly suburbs,” she said, attending Strath Haven High School. Her father works as a lawyer in Delaware County, and her mother worked as a features writer for Town Talk in Media before moving to a career in public relations.

“My mom was constantly pounding out stories on the typewriter in our kitchen. She interviewed local figures in the community, like [former Phillies pitcher] Tug McGraw, who lived in Wallingford. It seemed like such a fun job.”

Both Gallagher and her brother work in the news business, she as an editor at Fortune magazine and he at ESPN.

Earlier this year, she nabbed a major scoop when interviewing Airbnb cofounder Brian Chesky about plans to go public.

“He was more specific than usual, saying he considered it a two-year process to get ready, and that Airbnb would be ready sometime in 2018,” she said.

Last year, Airbnb achieved profitability based on EBITDA (earnings before interest, taxes, depreciation, and amortization). And its EBITDA is expected to grow to $2.6 billion by 2020 on revenues of $6.9 billion, Rao estimates.

In March, Airbnb closed its latest funding round of $1 billion, which reflected a value for the home-rental site of $31 billion, according to Rao. Airbnb has raised more than $3 billion since it was founded in San Francisco in 2008.

To give you an idea how its price in the private market has shot up, Fidelity and other large mutual-fund and venture-capital investors seeded Airbnb at $6.62 a share about five years ago. Manhattan Venture Partners has clients who have been shareholders in Airbnb all along its journey from private to likely-soon-public company, and "we make a market in the shares,” Rao said. 

The last round of funding valued Airbnb at $105 a share, about where Rao sees it going public. What was his thinking behind a $105-per-share initial public offering?

He looked at a basket of comparable lodging stocks such as Starwood and Marriott, which trade at a multiple of 1.7 times sales, then at a basket of vacation rental companies such as TripAdvisor and Expedia (which acquired HomeAway), which trade at 2.9 times sales. Online travel agents such as Priceline and Sabre trade at 3.3 times sales, and apartment REITs, which compete with Airbnb, trade at 11.7 times sales.

Finally, he added, Airbnb is “a marketplace, similar to pure marketplace models such as Etsy, eBay, Zillow, and Alibaba,” which trade at 2.7 times sales.

A blend of all those produced a multiple of 4.1 times Airbnb's $6.8 billion revenue number, or about $28 billion. On top of that, he said, “I gave them a premium for high growth of 25 percent, and then a discount for a private company of 10 percent. That’s how I get to $31.6 billion.”

There's growth potential down the road: When Airbnb hosts rent out a spare room for $100 a night, homeowners generally keep about $97. That’s different from Uber, Gallagher said: Homeowners keep more because fees are paid by the traveler to Airbnb.

Airbnb has ample cash and has been on an acquisition hunt, Gallagher said, “whereas Uber lost $3 billion last year alone. Airbnb is very efficient, with very little overhead. They probably have $2 billion in cash on their books, and one more thing that few people talk about – the float.”

That’s the 24-hour period during which Airbnb charges the guest, but doesn’t pay out to the homeowner until the next day. “Banks consider that a real asset,” she said.

SEC officials, on scams

What are the red flags you should watch out for when it comes to investments? Securities and Exchange Commission attorney Cindy Hoekstra, of the SEC’s Philadelphia Regional Office, has seen many of them and will share her expertise on how to avoid scams and investment traps. 

Regulators want the public to know which questions to ask a prospective adviser and how to search online for consumer complaints about advisers or brokers. To that end, Hoekstra and colleague Mark Dowdell will address members of Penn’s Village, a virtual retirement community, in Center City at 10 a.m. April 26 in the community room at Society Hill Towers, 285 St. James Place. (The entrance is on South Second Street, between Walnut and Spruce.)

The event is free and open to the public, but you must register by emailing  info@pennsvillage.org or calling 215-925-7333.