While the entire professional class, and every elected official, all claim to be optimists, I see the world through gray-colored glasses. Vaccine by fall, herd immunity, a robust recovery, markets will continue to surge, AI …
Pessimists are underappreciated, as while optimists built the first plane, pessimists suggested seat belts. Both parties have a role. Neville Chamberlain, Charles Keating, and Bobbi Brown were all likely optimists. But I digress.
So, being angry and depressed doesn’t mean I’m wrong. There are good companies that are overvalued (Tesla, Snowflake), good businesses whose emissions are bad for society (Facebook, Twitter), and firms that are just a menace (Uber). There are also firms that are all three (Palantir). However, occasionally there is a firm that is so gangster even I can’t help but see the glass as half empty, vs. empty. The most valuable private firm in America is Airbnb.
I believe this time next year, Airbnb will be the most valuable hospitality firm in the world and one of the world’s 10 strongest brands. (Note: rankings of “the world’s best brands” are a desperate yelp for relevance from ad agencies begging clients to buy more media and cling to the nineties, the Brand Era.) The SF platform will likely be worth more than the three largest hotel firms, combined. Why?
The Biggest Moat in Travel
Ride hailing requires local supply (drivers) and demand (hailers). Hotels need local supply (hotel rooms) and regional demand (guests). But a global hotel brand requires both local supply and global demand, as guests are from all over the world. Airbnb has global supply, boasting more than 7 million listings worldwide — more than Marriott International, Hilton Worldwide, InterContinental Hotels Group, Wyndham Hotel Group, and Hyatt Hotels, combined. More impressive, and singular, Airbnb is the only hospitality brand that has the global awareness to generate unrivaled demand.
Outside of luxury, which is not relevant/affordable to 90% of travelers, there isn’t a truly global brand, until now. Google searches reflect that Airbnb has eclipsed the equity of century-old brands, in one decade, across markets big and small. While competitors may have equity in a specific market, no brand sits on the iron throne across all markets as Airbnb does.
This equity also bests that of airlines and online booking engines that may have global awareness (like Qantas) but only regional relevance (i.e., not an option for intracontinental travel in markets outside Australia).
So, how to value the gangster of all private gangsters? What is the benchmark and the corresponding multiple? It’s clearly not a hotel business, but not a SaaS firm either. However, Airbnb is a tech firm and highly “disruptive.” The firm has a greater share of employees with an engineering background than Amazon or Uber.
How to Value?
The only firms I can think of that have global demand/supply and brand equity, and an asset-light high-margin business are the credit card companies, which trade at 20+ multiples of revenue. Airbnb projects 2021 revenues of $5-6 billion, yielding a potential $100-120 billion valuation.
In 2020, in the private markets, Airbnb shares have traded at a valuation ranging between $15-30 billion. The media pegs the IPO valuation at $30 billion. Put on your seatbelts, as the bankers will have no excuse to not price the shares at the high end of a recast (higher) range, and then reward their institutional clients with a Snowflake-like flurry when it begins trading. There’s something about weather and cruise analogies that becomes more appealing as you get older.
Ali vs. Holmes
In 1980, 38-year-old Muhammad Ali returned to the ring to fight a 30-year-old undefeated Larry Holmes. In the pre-fight examination Ali was unable to consistently touch his finger to his nose, had difficulty coordinating the muscles used in speaking, and could not hop on one foot. Boxing pundits describe the medical clearance to fight as criminal. I’m pretty sure the physician who cleared Ali for the fight now serves on the board of Facebook.
It’s difficult to identify another sector, this large, that has one player more ascendant while the rest of the industry can’t touch its nose. The hospitality sector has experienced an unprecedented shock that dwarfs 9/11 or any recession. Recessions, even wars, take occupancy levels down to 60%, or even 50%. No hotel owner or management firm modeled occupancy dropping to 0%. The result is an entire industry on its heels, except for one player that’s on its toes, waiting to spring forward with an information-age Super Bowl ad, the Initial Public Offering, and begin firing a howitzer of capital as other firms return fire with squirt guns.
Airbnb is also a better value than hotels, offering more space but with less Covid (no check-in, elevators, or common areas) at a lower cost. A crisis is a terrible thing to waste, and Covid afforded the CEO the cloud cover to cut costs and refocus on the core business. In May Airbnb laid off a quarter of its staff (1,900 employees). CEO Chesky managed to pull a Bezos and was seen as a hero for his empathetic approach to layoffs (generous severance, extended healthcare, and a website of Airbnb employees who were laid off to help them find new leads). Firing people, sending out dick pics — tomato/tomahto. Chesky and co-founders relinquished their salaries, cut pay in half for executives, and slashed nearly $1 billion in marketing expenses. The firm is in fighting shape.
The reduced cost structure and market recovery mean the path to profitability has become bigger, better lit, and shorter. There are rumors the firm will accelerate into/through profitability in 2021. The story here won’t be one of distant, but burgeoning, profits.
The New Story Stock
The story stock of 2020, where the narrative rode shotgun as the numbers sat quietly in the backseat, was Tesla. Airbnb will not electrify the world, but it will host it and reshape the resources required to let people tap into a basic instinct: to explore with others. What Airbnb lacks in story (unlikely Mr. Chesky can land two Brooklyn studio apartments on dual barges concurrently), it makes up in performance. There is no better vision than performance.
This morning I was on Bloomberg TV discussing SPAC stocks. Despite the echoes of “It’s different this time,” I believe SPACs are canaries in the digital coal mine and will continue, over the medium- and long-term, to underperform the market (note: this year they have overperformed). My advice, if you want to play SPACs, is to buy a basket, as among the bastards (I’m rewatching all eight seasons of GOT with my son), a dragon will be birthed. Or you could just buy the dragon … Airbnb.
Life is so rich,
P.S. On the pod I spoke to Sinan Aral about his new book on social media and how to overcome its negative effects. And … we have a new sprint — Product Strategy, taught by my NYU Stern colleague Professor Adam Alter. Sign up to join the early access list.