Assessing the impact of app-based gig-economy companies like Airbnb is difficult because there are few benchmarks available.
Airbnb in particular is a very unique company, with no real peers. Yet there is one way we can sort of benchmark it and that is to benchmark against another unique app-based solution: Uber.
Uber and Airbnb have a lot in common; both are disruptive app-based technology providers. Both challenge existing businesses and business models, and both disrupt the legal, political and regulatory envelope.
Another similarity is that both Uber and Airbnb will dramatically change the political and social environment around them. To achieve this both apps aim to create a community of users and service providers. Finally both services are growing at an incredible rate and attracting a vast amount of attention in the process.
With all that in common we can safely assume that Uber can show us a few things about Airbnb’s future. Although it is a poor benchmark because the two companies offer radically different products, Uber sells transportation Airbnb a place to sleep for the night. Uber also seems to be more technology focused, while Airbnb is more service oriented.
What we can learn about Airbnb from Uber
Here are a few things about Airbnb that we can learn from Uber.
- Airbnb is probably losing a lot of money. Bloomberg Technology placed Uber’s estimated losses for 2016 at $5.5 billion.
- It will be a long time; perhaps a long, long time, before Airbnb makes any money. Uber’s losses exceeded its revenues by $1.74 billion in 2016 according to data provided to Bloomberg by an anonymous source. The anonymous source claimed that Uber generated $3.76 billion in revenues during 2016.
- Airbnb will be a tough sell in some markets because of cultural and political differences. Uber pulled out of China completely during 2016, largely because of its inability to get along with the Communist Party.
- Both Airbnb and Uber are basically financial services companies. Uber is now leasing cars to drivers via Xchange Leasing, and at some point may start banking services to them. The only reason Uber is not doing this yet is probably to avoid banking regulations, Airbnb might do the same thing. A company called Payfully is already providing factoring and cash advances to Airbnb hosts.
- The secret to these companies is building a massive platform, Airbnb had 2.3 million listings as of July 11, 2016, according to expanded ramblings. There were 27,965 bedrooms available on Airbnb in New York City in September 2015 according to Statista.
- Both Airbnb and Uber are capable of attracting a lot of venture capital. Airbnb had attracted $3 billion as of December 16, 2016. Uber was able to get $3.5 billion out of the Saudi Public Investment in June.
- The valuations for Uber and Airbnb are extremely questionable. Uber is valued at $62.5 billion and Airbnb at $30 billion. Uber’s losses in particular call those numbers into question.
- The future for both Airbnb and Uber is shaky because of continued losses. Uber in particular seems to be subsisting on venture capital and nothing else. If it dries up, Uber might go down the drain.
- Despite the potential losses the business model for both Uber and Airbnb has been proven.
- App-based businesses like Uber and Airbnb are here to stay whether or not these particular brands succeed. A strong possibility is that these companies will survive as part of larger organizations.
- Neither Uber nor Airbnb will go public in the foreseeable future because that would force them to divulge their true finances. A more likely fate for either company is to be absorbed by a larger organization such as a bank, a hedge fund or in Uber’s case an auto company.
Whether or not Uber and Airbnb survive, the massive app-based ecosystems they have built are here to stay. Investors would be better served by buying stock in established publicly traded companies that provide services to Uber and Airbnb than investing in them directly.
How to Investment in Airbnb and Uber
This would include automakers such as Ford (NYSE: F) and Chrysler (NYSE: FCAU) both of which are heavily undervalued right now. They sell cars to Uber, and re developing the technology it will use in the future.
In the case of Airbnb, the best investment would be financial services and Fintech providers. That might include PayPal Holdings (NASDAQ: PYPL) and credit card providers such as American Express (NYSE: AXP). Purchasing real estate to sell or lease to Airbnb hosts would also be a good option, as would becoming a host yourself. Another way to invest in Airbnb would be in home improvement providers like Lowe’s (NYSE: LOW) which sell goods and services to hosts.
The long term future of the app-based gig economy looks bright; even if the future for the Uber and Airbnb brands is murky. Investors would be well advised to stay on the sidelines until the business model is proven.