The Ticker

Airbnb — the ‘Cockroach of Startups’ — Finally Goes Public

In 2008, few believed the startup could convince people to open their homes to strangers. In 2020, they’re counting on it to rescue the travel industry.

Photo: Jakub Porzycki/NurPhoto/Getty Images

Welcome to The Ticker, a series that examines everything you need to know about companies going public.

More than 12 years since its founding and less than nine months after the first U.S. lockdown order, Airbnb is slated to go public. It represents a remarkable show of resilience for a company in the travel and hospitality sectors, which were both battered by the coronavirus.

Airbnb’s performance during the pandemic may help persuade the market that much upside lies ahead. CEO Brian Chesky moved early this year to cut costs, adapt the business to a virtual world, and raise $2 billion in debt and equity to keep the lights on. The maneuvering worked and helped Airbnb rebound from an initial slump. That will no doubt reinforce the perception that Airbnb, founded during the Great Recession, is the uncrushable “cockroach of startups,” as Y Combinator founder Paul Graham once dubbed it.

Airbnb is not the same business it was in 2019. The pandemic transformed it, and that’s a good thing. Here’s what you need to know about the recalibrated company and its upcoming IPO.

The market opportunity is enormous

Airbnb estimates its total addressable market (TAM) at $3.4 trillion. It’s not uncommon to see heady figures appear in an S-1 filing, but even by such measures, Airbnb’s TAM stands out. For comparison, Snowflake estimated its market to be worth $81 billion while Palantir pegged its opportunity at $191 billion. Still, there’s every reason to find Airbnb’s assessment reasonably credible.

First of all, Airbnb’s core markets of hospitality, travel, and tourism are incredibly large. According to one estimate, global tourism adds $2.9 trillion to the global economy. More precisely, Airbnb’s filing estimates the “short-term stay” market to be worth $1.2 trillion. The company believes this industry will grow, partially powered by an expanding population, partially a consequence of individuals taking more trips. By 2030, Airbnb believes that short-term stays alone will be worth $1.8 trillion.

Airbnb also sees considerable opportunity in its Experiences. Launched as part of the company’s Trips product, Experiences initially allowed customers to book in-person tours, classes, and other tourist activities through the platform. The coronavirus encouraged Airbnb to bring this product online, allowing consumers to access these services remotely. At present, Airbnb believes the market size to $239 billion and expects it to rise to $1.4 trillion over the long term.

Finally, the pandemic has opened up a new opportunity for Airbnb: long-term stays. While the coronavirus made short-term international stays less appealing, lengthier domestic stays have become more popular. This gives the company access to the residential real estate market — rather than finding an apartment on StreetEasy or some other platform for apartment searching, consumers are visiting Airbnb and booking a place for a month or more. Airbnb estimates they can own 10% of this space, totaling $210 billion.

The upshot is that Airbnb has multiple massive markets to address. That makes its upside particularly exciting.

The business model is simple

Retail investors may find Airbnb’s offering persuasive both because they’re familiar with the company’s product and because of the simplicity of the business model. Compared to the labyrinthine offerings of businesses like Palantir or the wonkishness of Snowflake, Airbnb earns revenue in a refreshingly straightforward manner.

Indeed, the company summarizes its model with a single line in the S-1: “Revenue consists of service fees, net of incentives and refunds, charged to our customers.”

That “service fee” is levied on both hosts and guests, though guests pay the majority of it. Per Airbnb’s policies, “most guests” pay fees less than 14.2% of the total booking amount while “most hosts” pay fees less than 3% that amount. The company seems to price the total fee dynamically, factoring in length of stay, geography, and more.

Just as important are the ways that Airbnb has chosen not to make money. Airbnb could seek to monetize through late fees or payments, for example, but it doesn’t. The parsimoniousness of this approach illustrates what Airbnb finds most important: building trust and loyalty on both sides of the marketplace. A business with the short term in mind might have been more ruthless in monetizing; Airbnb looks to be playing the long game.

Hosts and guests are loyal

In response to the coronavirus, Airbnb significantly reduced its spending on sales and marketing (S&M). While over the first nine months of 2019, Airbnb spent $1.2 billion on S&M, that spending dropped to $546 million over the same period in 2020, a cut of over 50%.

Despite the decreased spending, Airbnb’s customer acquisition remained strong. Over that financial period in 2020, 91% of the company’s traffic arrived organically or through unpaid channels. While this percentage is partially boosted by Airbnb’s reduced spend elsewhere, it remains impressive and hints at the brand affinity the company has built. While Airbnb has seen competitors move into the market aggressively over the last few years (more on that later), it still seems to serve as the default destination for many.

Guests are not the only stakeholder with a strong affinity for the platform. Airbnb also shows remarkable host revenue retention. The S-1 provides host cohort statistics dating back to 2014. Revenue retention has never dropped below 88% across cohorts.

Airbnb S-1

This represents a good indication that Airbnb’s product serves hosts well and that they consider the platform a promising avenue through which to earn new business. Intriguingly, Airbnb has actually given hosts who have been active in the past two years access to pre-IPO shares. It’s another example of how the company is strengthening bonds with the supply side of the business. As competition increases, Airbnb hopes hosts will remember such moves and keep their listings on its platform.

Competition is heating up

“[C]ongratulations, Brian [Chesky], fantastic, enjoy being a CEO of a public company … We certainly will enjoy looking at their numbers instead of just hearing what they like to release. That will be an interesting thing, too.”

That half-hearted felicitation came from Glenn Fogel, CEO of the publicly traded While Airbnb once had the short-term stay market to itself, that luxury has disappeared. Other hospitality businesses have recognized the opportunity and moved aggressively to provide their own offerings. Along with, Airbnb competes with Vrbo (owned by Expedia), Tujia in China, and a host of smaller players. represents the most immediate threat. As shown in the graph below, Airbnb has the lead when it comes to short-term rentals, but when hotel inventory is included, has the most supply. Notably, it’s not far behind Airbnb in the short-term rental stakes either, trailing by just 800,000 rooms.

Image via author; Data from Skift

As tools like Guesty make it easy for hosts to manage listings across platforms, we may see a convergence on the supply side.’s Fogel has expressed his desire to bump up marketing spend in the U.S. after the pandemic subsidizes to close the gap.

Airbnb’s IPO looked far from certain earlier this year. In steadying the ship, Chesky and Co. have demonstrated their managerial bonafides, and stakeholder activity has illustrated Airbnb’s enduring pull. With a gargantuan market in front of them, the best looks like it’s yet to come for the business that Chesky noted people once considered the “worst idea.”

Tech from idea to IPO at Investing in chaotic-good founders at

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