What Challenges Does Airbnb Face?

By Motley Fool Staff Markets Fool.com

Airbnb has certainly made a splash in the travel industry, and based on its most recent round of financing, it could be worth $30 billion. That valuation puts it behind only Marriott (NASDAQ: MAR) in the hotel space. Here's the potential -- and the potential risk -- with this company, and its possible IPO this year.

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A full transcript follows the video.

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This podcast was recorded on Jan. 25, 2017.

Vincent Shen: I think the question that a lot of people have on their mind around Airbnb with this news and in general, the company having at this point a $30 billion valuation, is: When is the IPO going to happen? I know a lot of this is going to be coming from rumors and the momentum of other deals, but what do you think?

Seth McNew: Yeah, exactly! It's really all speculation at this point. The company hasn't announced any specific plans other than saying that they are working to shore up their financial position so that they're ready for an IPO, but pretty much, the CEO says it's not in their near-term plans. Now what "near term" means, none of us know. Does that mean late 2017? We're not really sure. I think the really interesting part is that the valuation is there. Their most recent round, which was in part by an arm ofAlphabet, lists them as valuing at $30 billion, second largest right behindMarriott.

Shen: The company at this point has raised over $3 billion in it's eight, nine years of existence. With that $30 billion valuation, for the numbers that I could find, it's really hard, obviously, because they haven't filed an S-1 or anything like that, but the 2015 revenue number that I could find was $900 million. Estimates of 2016 revenue at $1.7 billion, which is 90% year-over-year top-line growth -- pretty incredible. Definitely seems like they're managing to maintain that momentum behind new listings being added, guests buying into the service. But the core issue for a lot of these unicorns still is on the bottom line -- not surprisingly -- the company is still operating at a loss. The most recent number I could find was for 2015. The operating loss was estimated as $150 million. You're absolutely right, company management could be biding their time trying to figure out when. The process might take six months, but you want to know what the market is like for IPOs. One bad deal from a big tech start-up could spell bad news for a lot of deals that are expected to come after that.

Beyond the IPO, I think another issue is of the legal challenges and regulations. You mentioned to me before the show that when you just search news for Airbnb, the majority of the content is around some legal challenge or hearing in some city abroad or even within the States, like New York City. What are they facing right now? What's the big challenge?

McNew: I think you're right, and it's coming from cities internationally as well. Europe, they're having huge issues with that, some of the government regulations there. I think the big challenge is, how are you going to maintain that top-line growth if your biggest markets, New York, San Francisco, if the governments there are working to limit how much people can make using Airbnb, how long they can list properties for -- those kinds of things.

I think they're doing the right things to try to combat this. They're diversifying a little bit. They're working with regulators to make sure that they can get the right tax information. They recently, last year hired former U.S. Attorney General Eric Holder to be on their board to help them navigate some of these things. I think they're doing the right things. It's certainly a risk, but we'll just have to see how that shakes out.

Shen: For anyone who's traveled with Airbnb and you love the service, some of the qualms that local governments have had are around the issue of the short-term rentals potentially limiting housing availability in already very high demand metropolitan cities. Also, driving up pricing for a lot of housing. I think the company has made efforts as a result of all these lawsuits and hearings to try and crack down a little bit on what essentially amount to professional Airbnb landlords. People who have multiple listings. The property, instead of being somewhere they live, and that they rent out on occasion -- I think the limit in certain places for example is 90 days a year; no more than 90 days in the U.K. -- but some of these properties are available 40 weeks a year. Obviously, that is their business -- to rent it out on a regular basis. That's having issues on housing market in general in these cities. That seems to be the issue people are trying to figure out.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Seth McNew owns shares of MAR. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GOOG, GOOGL, and MAR. The Motley Fool has a disclosure policy.