“Wow… you guys are like cockroaches. You just won’t die”
– Paul Graham, Founder of Y Combinator
arvy’s teaser: From selling cereal to a $100 billion empire. Airbnb’s rise is a masterclass in resilience, creativity, and scale. But after five years on the market, one thing is still missing – a “Good Chart” to justify the “Good Story”.
Startups.
They’re always good for a wild story.
Why? Because every startup begins the same way – you write a business plan, take a deep breath, and jump off a cliff, having no idea what’s coming next. Then, in the very first second of free fall, your business plan flies away like a piece of paper caught in the wind. Suddenly, all you have left is sheer willpower and the desperate need to build something before you hit the ground. This is where you start assembling a plane – your business – in midair, hoping to pull up before crashing. Along the way, you encounter the unthinkable – unexpected problems, wild pivots, and moments of sheer panic.
Alright folks, let’s take a deep breath too. Let me tell you about a startup thriller.
It’s about a company you’ve used at least once.
It started as Air Bed & Breakfast.
You know it today as Airbnb.
Chart 1: First Airbnb website in 2008
Source: Airbedandbreakfast.com – 2008
Fire in Founders’ Eyes
Companies run by founders offer great potential for a significant success story.
Let’s have a look at the early beginnings of Airbnb.
In 2008, the startup was dying.
Their platform (chart 1) had zero growth, they were $40k in credit card debt, the co-founder left for another state in the US, the founders themselves did not have enough money for food and every investor rejected them.
To survive, they turned to a side business selling limited edition political cereal boxes – with the faces of Barack Obama and John McCain (chart 2) – and made $30,000!
Although this had nothing to do with their original idea of Airbnb, it was the turning point of the whole story and the only reason the company still exists today.
While they were buying time with the revenue, they had the chance to talk to one of the biggest startup investors in the world – Paul Graham from Y Combinator – even though he didn’t like the idea.
The reason why they made it anyway?
The fire in their eyes.
In their darkest hour, they refused to quit. Paul Graham saw it immediately when they told him the whole story: “Wow… you guys are like cockroaches. You just won’t die.”
The cereal boxes weren’t just a gimmick. They proved something crucial.
“If you can convince people to pay $40 for a $4 box of cereal, you can probably convince people to sleep in strangers’ airbeds.”, Graham said.
The cereal stunt – born from desperation – demonstrated:
- Creative problem-solving
- Hustle mentality
- Marketing skills
- Sales ability
Everything Y Combinator looks for in founders.
They could secure funding.
And built Airbnb.
Chart 2: One of the three founders, Joe Gebbia, with a limited edition of political cereal boxes
Source: Designverb
Critical-Mass Scale
Today, Airbnb is a company worth almost $100 billion and has 7,000 employees. This size would make it the 9th largest company in Switzerland.
It has 5 million hosts with 8 million accommodations and a cumulative 2 billion guest arrivals since its launch in 2008, with almost 500 million guest arrivals last year.
Over 90% of traffic comes directly to the platform via unpaid searches – without any detours via the app. Reflected in high gross margins of 83% and net income margins of 17%. A typical asset-light and cash rich business model.
Putting it all together: Airbnb’s network has reached critical mass.
It is now the second largest of the five leading online travel agencies, just behind Booking (Booking, Swoodoo, Kayak, OpenTable and rentalcars), and ahead of Trip.com (Skycanner), Expedia (e.g. Hotels.com, Ebookers, CarRentals, Trivago), the Indian MakeMyTrip or Tripadvisor. As a reminder, GetYourGuide is still privately owned.
But the company cannot rest on its laurels, as competition remains fierce. New market entrants, including companies that already have a significant user base, such as Google, Meta Platforms (Facebook), Alibaba and Amazon, are also looking for a slice of the lucrative pie.
Risks exist in every market. As such, we think we have a “Good Story” here. The company has an excellent reputation – which is reflected in its lovingly designed and thoughtful logo (chart 3) – and we believe that online penetration of the travel market can continue to grow from its current mid-60% level over the next few years.
This means that there is also an attractive structural growth trend.
Sounds all good, but something important is missing.
A “Good Chart”.
Chart 3: The meaning of the Airbnb logo
Source: Airbnb
Beware of IPOs
Airbnb is a newer IPO, an Initial Public Offering, which means the company only went public in 2020.
Do we buy IPOs at arvy right from the start?
No.
We always wait until the “Good Story” has gathered more price movements and price data before we consider an IPO. We want the company and its stock to have traded for a few weeks and months to increase the likelihood that we are right.
As a reminder, navigating the IPO landscape requires caution. The goal is to price the IPO as high as possible so that the company and founders raise as much money as possible and must give up as few shares as possible.
Thus, a key risk is that most IPOs are happening during very strong risk-on periods, such as 2020/2021 (uh, does Airbnb ring a bell 😉), when investors were willing to both pay very high valuations and take a lot of risk, respectively.
Then they are maliciously labeled with another name.
“It’s Probably Overpriced”.
And that is precisely the fate of Airbnb, which has moved sideways since its IPO five years ago. The company has had to grow into its high valuation. During this process, Airbnb formed so-called IPO bases, i.e. consolidation patterns from which the company needs to break out to reach new price highs and start a move with a rising and trending 200-day moving average (chart 4). This has not yet happened.
Until the “Good Chart” has not yet emerged, our stance remains clear.
We are not giving up on the app, but on the stock.
Chart 4: Airbnb since IPO in 2020
Source: Tradingview
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