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Airbnb, the online market for home and room rentals may be worth $10 billion.
The five-year-old start up lets people rent their rooms and homes directly to travelers, and it’s already one of Silicon Valley’s big success stories. The company is now reportedly in talks with investors for a new round of financing based on a valuation of about $10 billion.
That sum puts it above hotel groups like the Hyatt and the Wyndham, and the high price reflects what investors believe is the company’s potential to disrupt the hotel industry.
Airbnb’s growth is part of what is called “the sharing economy” — web-based businesses that allow people to trade goods and services directly with each other.
But like those companies, Airbnb’s growth has come with legal and other problems.
Hotel chains say that the service disadvantages them because the transactions aren’t subject to the same taxes.
Landlords have clamped down on renters who rent out room or space through Airbnb, and New York’s attorney general has issued a subpoena for information on the company’s 15,000 hosts in the state.
ROBIN YOUNG, HOST:
From NPR and WBUR Boston, I'm Robin Young. It's HERE AND NOW.
Airbnb, the online room and home rental site, may be worth more than the Hyatt hotel chain. Airbnb, the online platform which only started six years ago, connects people who want to rent rooms, houses, islands, with people who have them. And the company is now reportedly in talks with investors for a new round of financing based on a valuation of about $10 billion. That's more than hotel groups like the Hyatt and the Wyndham.
So what justifies that value? And haven't we been hearing about regulators looking into this business? Bloomberg News executive editor Marty Schenker is here. And Marty, start with the talks - investors and Airbnb hashing out how much the company is worth. How did they come up with 10 billion?
MARTY SCHENKER: Well, it's just a mathematical calculation based on how much they're going to sell to the public versus how much of the ownership that goes with it. So it's a theoretical number, but they think this business has a lot of potential.
YOUNG: Yeah. Well, they've got something like half a million sites. They've got millions of people - I think five million or so last year - who took advantage. But still, Hyatt and Wyndham hotels have thousands of hotels, you know, that they own. So who are we talking about when we talk about investors?
SCHENKER: Well, we're talking about venture capitalists. These are people who actually have a large pool of funds and scour the universe for the next huge idea and help them grow it by investing and getting a stake.
YOUNG: Yeah. Well, this is...
SCHENKER: These are people like Sequoia Capital, TPG, and even Ashton Kutcher is an early investor in this.
YOUNG: Oh, boy. Well, so they think it's the next big thing. But there have been some problems. I mean, hotel owners think the business gets an unfair leg up. The president of a New York hotel chain, Apple Core, told the Wall Street Journal these people are scofflaws. They don't have to pay to taxes and fees the way hotels do. And, in fact, local governments stand to lose tax revenues. So is there a push back here?
SCHENKER: There certainly is, and this is very reminiscent of Uber, the on-demand taxi service that has become so widespread around the world. And there have been concerns about regulation of that business. And so people like the attorney general of New York have subpoenaed their records, and they're fighting that. So there will be some pushback, and the tax issue is something that will need to be addressed at some point.
YOUNG: When you say fighting for the records, you mean Airbnb, to find out who these hosts are.
SCHENKER: That's correct, and just what kind of revenue they generate and where they might have a taxable event that, of course, all municipal governments are interested in.
YOUNG: Well, you know, it's interesting that it is so successful. It's - a lot of people here have used it, you know, especially traveling in New York. It's interesting because there's a certain trust factor, and we know there have been problems. There was one huge party - $86,000 in damage in one of these rented homes. And Airb2b - bnb, rather, had to, you know, take out insurance policies for hosts.
SCHENKER: That's right. And as in any nascent business, there are going to be problems that are going to be addressed. And the investors just are assuming with grown-up management and more controls they'll be able to grow this business as quickly as they have in the past. I mean, don't forget that Google went public in 2004 at $85, and it's at $1,200 today. So that's the kind of valuations that have raised people's attention.
YOUNG: Yeah. Well, some of these, you know, startups quickly deflate. Your sense of what's going to happen with Airbnb?
SCHENKER: Well, I think that they will probably continue to grow. They will probably go public at some point, and they will probably have mindboggling valuation.
YOUNG: But maybe along the way have to figure out how to, what, pay some taxes?
SCHENKER: Yes. They will have to adapt to the business environment in which they live.
YOUNG: Yeah. Marty Schenker, executive editor for Bloomberg News, on the huge growth of Airbnb, this online platform where you can rent your backroom to somebody, a complete stranger, and people are doing it. Marty, thanks so much.
SCHENKER: You're welcome, Robin.
YOUNG: You're listening to HERE AND NOW. Transcript provided by NPR, Copyright NPR.