Thursday was a historic day for Airbnb and the travel industry at large. Airbnb is a excellent business, but is it a $100 billion business?
Airbnb priced its historic initial public offering at $68 per share for a company valuation of $47 billion. That’s the largest travel IPO in history by a mile — the next closest was Hilton’s 2013 listing valued at $19.7 billion. Shockingly, shares soared even higher in trading to close the day on Thursday at $145 and give Airbnb a market capitalization of $100 billion, making it the largest travel company in the world, catapulting it ahead of Booking Holdings. From a pure multiple valuation perspective Booking Holdings shares now trade at 9x Wall Street estimates for 2021 revenue. In contrast Airbnb now trades at a whopping 24x our estimate for 2021 revenue. What in the world in the world is going on here? What are investors thinking, or not thinking as the case may be? A great many are betting on Airbnb’s growth potential. That means these investors will need to grapple with the paradox at the core of Airbnb’s growth: how to continue to scale without diluting the unique brand its built. A hard truth is that it may not be possible to do both. Airbnb’s Brand is the Key to its Growth Why care about diluting the brand? Well, Airbnb’s brand is not just a question for marketers or academics. It has a tangible dollar impact that investors need to understand. In 2019, 69 percent of Airbnb’s revenue came from repeat customers who had already booked at least once within the past year — and the company doesn’t even have a formal loyalty program. Those guests returned for free, whereas Expedia and Booking pay dearly to attract the same customer. If Expedia and Booking spent the same on sales and marketing as a share of revenue that Airbnb does, they would save a coll