AirBed and Breakfast, and More

Last week, Airbnb made a big announcement and launched Trip Experiences. With that, Airbnb is taking travel to an entire new level. Travelers can now add unique local experiences to their housing choice. As a start, Airbnb is offering a large variety of handcrafted experiences that are led by local experts, ranging from lessons from a samurai master in Japan, to training with long-distance runners in Kenya, to surfing with a local pro in Malibu, to a 3-day wine tour in California. Experiences can be just for a day, or can be a multi-day event.

Just like with housing, the hosts sets their own price, but must cover any associated costs during the Trip Experience. As an example, you can book a 3-day Sushi tasting and learning experience in Tokyo, run by sushi expert Katsunori, for $320 per person. Katsunori will then need to make sure that all related costs are covered. Or you can chose a Couture & Perfumery experience with expert Claire in Paris. This one is also a 3-day experience for $329. Surfing in LA is currently offered by surf guru Garrett, and costs $149 for 2 days.

Airbnb is adding an entire new lever to the trip planning process, and is solving a problem many travelers struggle with when visiting a new place. Instead of finding the right guide, the right restaurant, and the right things to do, Airbnb is now offering all these parts in one place. It is also initiating the connection between travelers and locals. With the new offering, you automatically know a local person, who aside from Trip Experience, will also give you tips and suggestions for your stay.

To the customers, this new offering is a great addition to the whole travel experience. It’s an effective way to search and find interesting things to do, while visiting a place. Just like with overnight stays, hosts will be “graded” with user reviews, which will then make it even easier for new users to select.

On the flip side, Trip Experiences offer a brand new way for people to perform a “job.” Whether the sushi master in Tokyo, or the surf guru in LA, it represents an additional work and income opportunity. These are just two examples — think of all the people around the World and all the services that could be offered; An Eskimo showing you how to fish on the North Pole? A trip with a local guide in the Amazon jungle? Tennis lessons and analytics from a former Pro? How to cook ratatouille while in Paris? Learning Portuguese while in Rio?…This is essentially an open-ended market opportunity, and if done right, it will excel Airbnb to become a multi-hundred billion-dollar company.

In order for trips to be profitable for guides, they will need 4–8 travelers per session, depending on the cost-profit structure. To match travelers with sessions, Airbnb uses batching — it applies data and algorithms to match the preferences of travelers with guides. For the economics to work for Airbnb, it will require millions of people to be signed up and use Trip Experiences.

On-demand labor marketplaces such as Upwork or LinkedIn, or job learning platforms like Coursera, Udacity or edX are all contributing to the emerging “gig-economy” and the Future of Work. Airbnb Trip Experiences is now pushing into that ecosystem, but from a slightly different vantage point. With technology eating traditional jobs, people now have new opportunities and can profit from performing their skills and knowledge on an on-demand basis. Authenticity and Originality are key to these tasks, as they are almost impossible to replicated by machines.

Worth $30 billion today, Airbnb is among the top IPO candidates for 2017. According to Vanity Fair’s interview with CEO Brian Chesky, the company is expected to do $12.3 billion in rental bookings this year. At an effective ~12% take rate, this implies they will do just over $1.5 billion in net revenue, up from $900 million in 2015. With +70% revenue growth this year, and the addition of the Trip Experiences growth engine, Airbnb could be looking at an estimated 70%+ revenue growth next year.

Airbnb Annual Revenue Estimates

Source: News Reports, GSV

To beat their current valuation, Airbnb will need to be valued at ~13x or more on next year’s revenue. There are not many public companies valued at such a high revenue multiple, but given Airbnb’s robust growth, strong fundamentals, its management power and vision, and the fact that it is already cash flow positive, it is in a good position to deliver significant upside next year.

Leading Public Companies Trading At High P/S Multiples

Source: MarketSmith, IBD

As published in this week’s A 2 Apple:

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