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Stock Strategist

Airbnb Offers Investors a Unique Stay

A rare network advantage in a rapidly growing industry is worth a premium valuation.

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Airbnb was conceptualized in August 2007 as an alternative to hotel lodging. We calculate it is now the largest player in the $150 billion alternative accommodation booking market with a high teens share, up from about 4% in 2014. We estimate that roughly half of the market’s bookings occur online, with Airbnb holding around 35% online share today versus about 10% in 2014.

Ahead of its anticipated initial public offering in 2019-20, we see Airbnb’s current market capitalization ranging between $53 billion ($180 per share) and $65 billion ($221 per share), using a peer-based as well as a discounted cash flow-derived exit multiple approach. This is 70%-110% higher than the $31 billion the company fetched at its most recent funding round in July 2017 and above the valuation of any hotel operator. Our valuation implies an enterprise value/2019 EBITDA multiple range of 28-32 times (with an assumption of $3 billion in net cash); this is a premium to the 18 times awarded on average to other companies with online marketplaces. We believe a premium is warranted based on several attractive features Airbnb offers investors, including (1) a powerful and rare network advantage that should drive continued share gains in a rapidly growing alternative accommodation market; (2) an opportunity to expand its network and addressable market into hotel, experiences, corporate, and transportation; and (3) strong profitability prospects driven by high consumer awareness, allowing the company to leverage top-line growth. We believe Airbnb’s IPO should be on the radar screens for investors seeking exposure to a company positioned to gain share in the nearly $700 billion global online travel market, which we estimate will grow 9.4% annually on average over the next five years.

Dan Wasiolek does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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