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02 July
2015
Startups
Views 6240

AirBnB vs. Marriott: How come it could be worth more?

In one of my last blog entries, I wrote about Uber.   This time, I am writing about AirBnb, a marketplace selling accommodations.

An article on the Wall Street Journal caught my attention:

WSJ 2

It seems that AirBnB is worth more than Marriott International with its 4,000 hotels under management and US$13.8bn in revenue.  In contrast, AirBnB which is forecasting US$900 million in revenues in 2015 and a loss of about US$150 million is raising US$1bn at a US$24bn valuation.  Marriott is valued at US$21bn (NASDAQ:MAR). Many years ago, during and after the dot.com bust, we laughed at the prospect of companies with no physical assets being worth more than their brick and mortar counterparts.

But let’s look at AirBnB:  according to the Wall Street Journal article by 2020 it is projecting US$10bn in revenues with an EBITDA of US$3bn.   That is a 30% margin on EBITDA, compared with Marriott’s 5.5%. And that’s the beauty of the marketplace business models which Uber is a part of as well.   These days, having no physical assets is a great plus.   AirBnB is a “simple” intermediary between people who want to rent living spaces and people who need them.   It charges a 3% cut of every booking plus a 6% to 12% service fee from guests. Its business model is extremely scalable.  In contrast with Marriott, it does not have employees in hotels, nor does it have reservation agents, etc.   It is basically an online platform and it does not need to increase its employees proportionally with its revenues.    That’s the reason why it’s so valuable = the more scale it achieves, the greater its margins.

AirBnB, despite facing regulatory constraints in some major cities, is a disrupting force in the hotel industry and it is just getting started…

It’s a very similar story to that of Uber.



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