The sharing economy is not all that caring when it comes to regulators. Airbnb’s fraught relationship with city officials is one of the company’s biggest stumbling blocks ahead of its potential listing in 2019, which is included in Lex’s deal review in the cause of looking forward as well as back.
Regulators in California, Florida and New York want to limit the volume of space rented out. In the UK, the company’s tax arrangements are being questioned. In Europe, hosts’ taxes are facing scrutiny.
The San Francisco company’s supply of rooms is under pressure in cities where the authorities are taking a harder line. In the year to October, supply in cities with at least a year of regulation rose 10 per cent, against 30 per cent for the whole of the US, according to UBS.
This, however, has not hurt revenue growth. Demand for spare bedrooms and city-centre apartments is stronger than ever. Occupancy rates are rising, regardless of regulation. That means more profits. Revenue growth may be Silicon Valley’s preferred metric, but Airbnb is one of the few unicorns that makes money, too. While Uber and Netflix burn through cash, Airbnb had ebitda of $US100 million ($141.6m) last year.
Margins remain thin. That $US100m of ebitda came on the back of revenue estimated by the Financial Times at about $US3.5 billion, a margin of just 3 per cent. Hotel group Hilton made about $US1.6b on the same annual revenue — a 47 per cent margin.
Yet Airbnb’s most recent valuation was $US31b, while Hilton’s market capitalisation is just under $US21b. This reflects Airbnb’s status as an online disrupter of the hotel old guard. Gross bookings rose about 150 per cent in the third quarter — a record three months of sales. It has done well convincing the public that its model is not just for hostel-going youngsters. Moving into hotel-like buildings should elevate the brand.
As Airbnb moves closer to public markets, rising bookings should placate those worried by any dip in room supply.