(1) An investment analyst recommends not investing $1M in Airbnb's $1B funding round at a $20B pre-money valuation. (2) While Airbnb has strong traction as a global vacation rental marketplace, the $20B valuation overinflates its true value of around $10.2B based on DCF and public company comparables analyses. (3) The high valuation will hinder investor returns and there are regulatory, cost, and competitive unknowns that make Airbnb a risky investment at this stage.

1. Airbnb, Inc.
Investment Recommendation
Allen Miller, 5/5/2015

2. 1
Investment Thesis
• Investment Opportunity: Recent news articles have reported that Airbnb is raising $1B at a
$20B pre-money valuation. Assume there is an opportunity to invest $1M as part of the
syndicated $1B round led by a major hedge fund.
• Recommendation & Rationale:
• Do not invest in the $1B raise at a $20B valuation:
• Airbnb may be a great vertical marketplace business attacking $85B in TAM with
proven traction and a strong business model. In fact, it was a very good business to
invest in during the early rounds when the price was low.
• However, there are 3 major problems with the investment opportunity at this stage:
(1) A $20B valuation overinflates the true value of the business, which is closer
to $10.2B. This high valuation will hinder returns for later stage investors.
(2) Airbnb has important competitive advantages in terms of network effects
and customer captivity, but nothing that will allow it to be a complete “winner-
takes-all” business. At the very least, it will have to share TAM with HomeAway.
(3) There are a number of unknowns that make Airbnb a risky business to
invest in including: macro-economic trends, regulation and an uncertain cost
structure. Some of these unknowns could be detrimental to Airbnb’s growth.

3. 2
Service Description: Global Vacation Rental Marketplace
• Overview: Vertical marketplace connecting
travelers looking for lodging and renters looking to
rent out their properties across 34,000 cities.
• Value Proposition:
• Guests: (1) Affordability (less expensive than
alternatives such as hotels); (2) Convenience
(greater flexibility on rental length, timing of
check in, number of guests, variety of
accommodations); (3) Community (local hosts,
full rating and review system).
• Hosts: (1) Incremental Income (additional
source of income for underutilized property
(2) Security ($1M insurance coverage, secure
payments, relatively trusted community).
• Revenue Model: Both guests and hosts pay a fee
every time a booking is completed. The guest
booking fee, ranges between 6% and 12% based on
the value of the transaction (larger transaction =
lower fee). The host service fee is 3%.
Source: Airbnb

4. Market: Vacation Rental Market Size & Competitive Landscape
3
Market Size
Competitive Landscape
Annual Vacation Arrivals Worldwide 1,087,000,000
Average Airbnb Guest Stay (# of nights) 5.2
Annual Room Nights 5,652,400,000
Average Price per Night $125
Gross Booking Revenue $706,550,000,000
Midpoint of Guest Fee (6%-12%) 9%
Host Fee (3%) 3%
Total Addressable Market $84,786,000,000
Bottoms-up market sizing yields a TAM of ~$85B.
However, this may be grossly understating the full
potential, which could be well over $1T:
• Growth: Most countries have had vacation
arrival CAGRs of 5-10%, which will only
accelerate in the next decade.
• Redefined Market: Traditional market sizing
doesn’t account for all the new “hosts” enabled
by the shared economy principles at play.
• Novel Rental Properties: Castles, B&Bs, yachts,
motor homes, etc. are not accounted for.
Sources: Statista, Skift, Airbnb, Beyond Pricing
Traditional Hotels OTAs Marketplaces Smaller Players
Key Takeaway: TAM is estimated to be $85B, though the reality is likely well over $1T. There are a
variety of competitors with HomeAway being the chief competitor.

5. 4
Competitive Advantages Framework
Government
Regulation
Scale Customer Captivity Cost
SEC Filing
Fixed
Costs
Network
Effects
Switching
Cost
Search
Costs
Proprietary
Technology
Special
Resources
Mid Low High High Low Low Low
• Scale: There are no fixed cost advantages as Airbnb doesn’t own any of its properties. There are however,
huge network effects—the service becomes increasingly valuable to hosts and guests the more people there are on
both sides of the two-sided platform. This advantaged is evidenced by Airbnb’s 1M+ listings world wide.
• Customer Captivity: While it may seem easy to multi-home, Airbnb has built in a number of features that
create high switching costs. The full end-to-end integration, $1M insurance policy, payments features and reviews
create a sense of security for both hosts and guests that is hard to replicate. The captivity is evidenced by
average stays per booking: 5 nights with Airbnb vs. an average for vacation hotel stayers of only 2.5 nights.
• Government Regulation: As a side benefit to it’s scale and willingness to proactively work with local
governments to shape rental policy, Airbnb has been effectively moving through a number of regulatory issues
that hinder smaller players. In Portland and SF, for example, they have built the internal capability to collect
hotel taxes on the hosts behalf allowing them to stay in business in those markets.
• Cost: No advantages in terms of proprietary technology or special resources.
Key Takeaway: Airbnb has clear competitive advantages over nearly everyone in the areas of scale
(high network effects) and captivity (high switching costs). The challenge, though, is that
HomeAway shares these same advantages so, at the very least, it’s a 2-horse race.
Sources: Skift, Airbnb, The Guardian

6. 5
Financials & Valuation
Discounted Cash Flow
10.0% 12.5% 15.0% 17.5% 20.0%
4% $11,609,684 $8,490,579 $6,755,047 $5,638,735 $4,854,406.66
5% $13,664,522 $9,457,562 $7,315,457 $6,004,040 $5,111,261.40
6% $16,746,779 $10,722,077 $8,000,403 $6,432,875 $5,404,809.68
7% $21,883,873 $12,446,417 $8,856,586 $6,943,394 $5,743,519.22
8% $32,158,063 $14,937,129 $9,957,392 $7,561,390 $6,138,680.36
WACC
Long-termgrowth
Company EV
Sales
(2014)
EBITDA
(2014)
EV/
Sales
EV/
EBITDA Weight
Travel Marketplaces
HomeAway $2,581 $447 $127 5.8x 20.4x 30%
Priceline $65,452 $9,350 $3,762 7.0x 17.4x 15%
Expedia $12,744 $6,372 $1,108 2.0x 11.5x 15%
Other Vertical Mkts
Lending Club $8,591 $213 $21 40.3x 403.3x 20%
Zillow $5,342 $326 $22.17 16.4x 241.0x 20%
Weighted Average: 14.4x 139.3x
Implied Enterprise Value: $6.9B $12.0B
Airbnb $ 10.7B* $475 $86
Public Comps
Key Takeaway: While Airbnb is certainly an impressive and fast growing company, a combined
DCF and Comps Analysis suggests an EV of only $10.2B, well below the $20B pre-money
valuation implied in the private funding round.
Sources: Skift, Business Insider, HomeAway 10K, Factset
*Weighted EV/Sales (25%) & EV/EBITDA (75%)
DCF Assumptions
• Room Night growth slows to ~5-7%
by 2020; inline with low end of
historical travel CAGR.
• Airbnb captures ~33% of the vacation
rental market by 2020; reflecting
market-leader position but leaving
room for HomeAway and traditional
hotels.
• Take Rate of 12% (3% fee charged to
host, average 9% fee charged to guest).
• Similar cost stucture to HomeAway.
• 20% long-term margins reflecting
strong network effects and solid
customer captivity. Lack of other
meaningful competitive advantages
prevents higher margins.
Combined Final Valuation
Methodology EV Weight
Midpoint DCF: $8.9B 30%
Public Comps: $10.7B 70%
Weighted Avg: $10.2B

7. 6
Return Analysis & Other Important Factors
• Current Valuation is Hyperinflated:
• Airbnb is an attractive business, but investors pouring in private dollars to fuel growth have inflated the
company’s valuation. This will particularly hurt later stage investors who are getting in at higher prices.
• At a $20B valuation, Airbnb would be valued at a 42.1x EV/Sales multiple and a 232.4x EV/EBITDA
multiple—both of which are well above the average for public comps.
• A $20B valuation would imply Airbnb has an EV 8x the size of HomeAway, which seems unlikely given the
similarity of their businesses and metrics to-date.
• Inflated Valuations Impact Returns:
• In order for investors to get a 3x return at a $21B post ($20B pre + $1B investment), Airbnb would have to
exit for $63B. This implies that Airbnb takes ~75% of the TAM, which is highly unlikely.
• Only an IPO can produce that sort of outcome. Even the major hotel brands, with real assets, billions of
dollars in revenue and many more customers, don’t have valuations at that level: Hilton ($29.3B), Marriott
($22.4B), Starwood ($14.8B).
• Many Unknowns Remain:
• Macroeconomic Trends: consumer behavior around the shared economy is a relatively new phenomenon and
it’s unclear how seasonality and cyclicality will effect the business moving forward.
• Regulation: The unpredictability of local governments and the decentralized regulatory environment could
stymie the pace of growth.
• Costs and Margin Pressure: As the vacation rental market continues to narrow into a two horse race between
Airbnb and HomeAway, both players will compete for the same customers, which will likely increase CAC,
burn rates and churn as well as threaten to lower margins.
Sources: Skift, Yahoo Finance, Factset
Key Takeaway: Private dollars have inflated Airbnb’s valuation making it difficult for later stage
investors to realize sufficient returns. Additionally, there are a number of unknowns that could
negatively impact Airbnb’s growth and long term success.