AirBNB S-1: Risks Section Analysis - Part 2
Hey everyone 👋,
Welcome back for part 2 of my analysis of the AirBNB S-1 Risks Section.
If you missed it, click the link here for part 1
If you want to skip over all this reading and get to the cliff notes, just scroll down to final thoughts at the end.
Again just a word on how this article is formatted:
Bold and Italics means stated risk by the company.
Normal font is a quote/excerpt of part of the management’s commentary regarding the stated risk.
Block quote italicized is my commentary.
That being said…let’s dive in 🏊♂️
We face possible risks associated with natural disasters and the physical effects of climate change, which may include more frequent or severe storms, hurricanes, flooding, rising sea levels, shortages of water, droughts and wildfires, any of which could have a material adverse effect on our business, results of operations, and financial condition.
The risk is the effect that these may have on repair costs, property insurance and down time following disasters.
We may experience significant fluctuations in our results of operations, which make it difficult to forecast our future results.
No explanation needed
We currently rely on a number of third-party service providers to host and deliver a significant portion of our platform and services, and any interruptions or delays in services from these third parties could impair the delivery of our platform and services, and our business, results of operations, and financial condition could be materially adversely affected.
Our systems currently do not provide complete redundancy of data storage or processing or payment processing. Although we are in the process of developing a comprehensive business continuity and disaster recovery plans for all of our operations, there is no guarantee that such plans will be effective.
While I was interested to learn that they use AWS in this section and rely on Google Maps (not ideal since they are a big competitor) — the real important takeaway is the lack of a continuity plan. 😲😲😲 Not having redundancies is bad. Real bad. They need to get on that ASAP.
We may raise additional capital in the future or otherwise issue equity, which could have a dilutive effect on existing stockholders and adversely affect the market price of our common stock.
Not shocking
The coverage afforded under our insurance policies may be inadequate for the needs of our business or our third-party insurers may be unable or unwilling to meet our coverage requirements, which could materially adversely affect our business, results of operations, and financial condition.
We use a combination of third-party insurance and self-insurance, including a wholly-owned captive insurance subsidiary established in 2019, to manage the exposures related to our business operations. We support our host community by maintaining a variety of host protection programs, including Host Protection Insurance and Experience Protection Insurance, and our Host Guarantee Program. Our business, results of operations, and financial condition would be materially adversely affected if (i) cost per claim, premiums or the number of claims significantly exceeds our expectations; (ii) we experience a claim in excess of our coverage limits; (iii) our insurance providers become insolvent or otherwise fail to pay on our insurance claims; (iv) we experience a claim for which coverage is not provided; or (v) the number of claims under our deductibles or self-insured retentions differs from historic averages. Our overall spend on insurance has increased as our business has grown and losses from covered claims have increased. Premiums have increased as a result, and we have experienced and expect to continue to experience increased difficulty in obtaining appropriate policy limits and levels of coverage at a reasonable cost and with reasonable terms and conditions..…
Skipping over a few lines…but will double back to this
Captive Insurance Company
We have a wholly-owned captive insurance subsidiary to manage the financial exposure related to our host and experiences protection insurance programs along with certain corporate insurance programs. Our captive insurance subsidiary is a party to certain reinsurance and indemnification arrangements that transfer a portion of the risk from our insurance providers to the captive insurance subsidiary, which could require us to pay out material amounts that may be in excess of our insurance reserves. As our business continues to develop and diversify, we may choose to or have to transfer more risk to our captive insurance subsidiary as it may become more difficult to obtain insurance with current retentions or deductibles and with similar terms to cover our exposure. Our insurance reserves account includes unpaid losses, loss adjustment expenses for risks, and other associated expenses, such as defense costs retained by us through our captive insurance subsidiary. These amounts are based on actuarial estimates, historical claim information, and industry data. While these reserves are believed to be adequate, our ultimate liability could be in excess of our reserves, which could materially adversely affect our results of operations and financial position.
Host Guarantee Program
We maintain a Host Guarantee Program that provides reimbursement of up to $1 million for loss or damages to a host property caused by guests, subject to terms and conditions. While the Host Guarantee Program is a commercial agreement with our hosts and for which we are primarily responsible, we maintain a contractual liability insurance policy to provide coverage to us for claims and losses incurred by us under the Host Guarantee Program. Increased claim frequency and severity and increased fraudulent claims could result in greater payouts, premium increases, and/or difficulty securing coverage. Further, disputes with hosts as to whether the Host Guarantee Program applies to alleged losses or damages and the increased submission of fraudulent payment requests could require significant time and financial resources.
So this is something to think about when analyzing AirBNB. Clearly this company isn’t just a simple market platform like an Etsy. Similar to an Uber or GrubHub, AirBNB has a complicated infrastructure that’s required to support it’s core business. While I imagine that some of this cost is passed back to the host via the revenue take, I think AirBNB will need to make it a mandatory fee at some point which is excluded from the revenue take. Similar to how other platforms have order fees along with % takes. They don’t have to necessarily profit off of it. In fact, it would be a value add-on for hosts if they just did enough to cover expenses while still proving insurance for the hosts at a group purchased discounted rate.
Our community support function is critical to the success of our platform, and any failure to provide high-quality service could affect our ability to retain our existing hosts and guests and attract new ones.
As part of our reduction in force announced in May 2020, we significantly reduced the number of employees in our community support organization and our technology organization, which impacted our ability to provide effective support to our hosts and guests. Our service is staffed based on complex algorithms that map to our business forecasts. Any volatility in those forecasts could lead to staffing gaps that could impact the quality of our service. We have in the past experienced and may in the future experience backlog incidents that lead to substantial delays or other issues in responding to requests for customer support, which may reduce our ability to effectively retain hosts and guests.
When a host or guest has a poor experience on our platform, we may issue refunds or coupons for future stays. These refunds and coupons are generally treated as a reduction to revenue, and we may make payouts for property damage claims under our Host Guarantee Program, which we account for as consideration paid to a customer and is also generally treated as a reduction in revenue. A robust community support effort is costly, and we expect such cost to continue to rise in the future as we grow our business. We have historically seen a significant number of community support inquiries from hosts and guests. Our efforts to reduce the number of community support requests may not be effective, and we could incur increased costs without corresponding revenue, which would materially adversely affect our business, results of operations, and financial condition.
Kudos on reducing revenue as opposed to baking it into an expense when a refund is realized. This avoids inflated revenues on financial statements.
However, the line about community support is another cost that a company like Expedia or Booking Holdings doesn’t have to worry about. In seeing the risks, I’ve become less bullish about what margins to expect over time from AirBNB.
A significant portion of our bookings and revenue are denominated in foreign currencies, and our financial results are exposed to changes in foreign exchange rates.
This can be both bad and good. Especially if you believe that the dollar is going to be devalued due to too much stimulus, earning revenues in foreign currency would be a good thing.
The value of our equity investments in private companies could decline, which could materially adversely affect our results of operations and financial condition.
Normal
We may have exposure to greater than anticipated income tax liabilities.
Note — This is an extremely important section and I’d strongly encourage you to analyze the tax issues they are having carefully.
For example, our 2008 to 2019 tax years remain subject to examination in the United States and California due to tax attributes and statutes of limitations, and our 2015 to 2019 tax years remain subject to examination in Ireland. We are currently under examination for income taxes by the Internal Revenue Service (“IRS”) for the years 2013 and 2016. We are continuing to respond to inquiries related to these examinations. While we have not yet received a Revenue Agent’s Report generally issued at the conclusion of an IRS examination, in September 2020, we received a Draft Notice of Proposed Adjustment from the IRS for the 2013 tax year relating to the valuation of our international intellectual property which was sold to a subsidiary in 2013. The notice proposes an increase to our U.S. taxable income that could result in additional income tax expense and cash tax liability of $1.35 billion, plus penalties and interest, which exceeds our current reserve recorded in our consolidated financial statements by more than $1.0 billion. A formal Notice of Proposed Adjustment is expected from the IRS by the end of 2020. We disagree with the proposed adjustment and intend to vigorously contest it. If we are not able to resolve the proposed adjustment at the IRS examination-level, we plan to pursue all available administrative and, if necessary, judicial remedies which may include: entering into administrative settlement discussions with the IRS Independent Office of Appeals (“IRS Appeals”) in 2021, and if necessary petitioning the U.S. Tax Court (“Tax Court”) for redetermination if an acceptable outcome cannot be reached with IRS Appeals, and finally, and if necessary, appealing the Tax Court’s decision to the appropriate appellate court. If the IRS prevails in the assessment of additional tax due based on its position and such tax and related interest and penalties, if any, exceeds our current reserves, such outcome could have a material adverse impact on our financial position and results of operations, and any assessment of additional tax could require a significant cash payment and have a material adverse impact on our cash flow.
In the third quarter of 2020, we approved a restructuring plan to repatriate our intellectual property to the United States to align with our evolving operations in a post COVID-19 environment. The multiple transactions that comprise the restructuring are expected to be completed in the fourth quarter of 2020. The restructuring plan involves numerous intercompany arrangements and tax jurisdictions and requires the valuation of multiple intercompany transactions which could be challenged by respective tax authorities, including as a result of reduced valuations caused by forecast adjustments due to the impact of COVID-19, and any adverse outcome of any review or audit could materially adversely affect our business, results of operations, and financial condition. We are currently under a multilateral control audit (“MLC”) where a number of individual European state audits are combined. The MLC audit is focused on VAT characterization and compliance, access to host data, and transfer pricing. Tax authorities may disagree with certain positions we have taken and any adverse outcome of any review or audit could materially adversely affect our business, results of operations, and financial condition.
The determination of our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Our provision for income taxes is also determined by the manner in which we operate our business, and any changes to such operations or laws applicable to such operations may affect our effective tax rate. Changes in accounting for intercompany transactions may also affect our effective tax rate. For example, with the adoption of ASU No. 2016-16, effective January 1, 2018, the income tax effects of an intercompany transfer are recognized in the period in which the transfer occurs, rather than amortized over time, which may increase the impact of such transfers on our effective tax rate in a particular period. Although we believe that our provision for income taxes is reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and could materially affect our financial results in the period or periods for which such determination is made. In addition, our future tax expense could be adversely affected by earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, or accounting principles. For example, we have previously incurred losses in the United States and certain international subsidiaries that resulted in an effective tax rate that is significantly higher than the statutory tax rate in the United States and this could continue to happen in the future. We may also be subject to additional tax liability relating to indirect or other non-income taxes, as described in our risk factor titled “— Uncertainty in the application of taxes to our hosts, guests, or platform could increase our tax liabilities and may discourage hosts and guests from conducting business on our platform.” Our tax positions or tax returns are subject to change, and therefore we cannot accurately predict whether we may incur material additional tax liabilities in the future, which would materially adversely affect our results of operations and financial condition.
The problem when you operate in 220 countries, is that you deal with 100s of currencies and 100s of tax laws. When shuffling property, money and other assets around between countries and multiple subsidiaries, it creates a significant General and Administrative expense on the company. In my opinion, taxation and regulation is the biggest challenge for AirBNB going forward. While I don’t believe house sharing will be regulated, I do believe that tax issues are going to be at the fore over the next few years and that this will be a significant distraction and drain on the company.
Changes in tax laws or tax rulings could materially affect our business, results of operations, and financial condition.
The Organization for Economic Cooperation and Development has been working on a Base Erosion and Profit Shifting Project, and issued a report in 2015 and an interim report in 2018, and is expected to continue to issue guidelines and proposals that may change various aspects of the existing framework under which our tax obligations are determined in many of the countries in which we do business. Similarly, the European Commission and several countries have issued proposals that would change various aspects of the current tax framework under which we are taxed. These proposals include changes to the existing framework to calculate income tax, as well as proposals to change or impose new types of non-income (including indirect) taxes, including taxes based on a percentage of revenue. For example, France, Italy, Spain, and the United Kingdom, among others, have each proposed or enacted taxes applicable to digital services, which includes business activities on digital platforms and would likely apply to our business.
Death and Taxes.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Nothing to see here
Our business depends on attracting and retaining capable management and employees, and the loss of any key personnel could materially adversely affect our business, results of operations, and financial condition.
Can we just eliminate this from every S-1 and 10-K? Every business has to have capable management and employees
Consumer use of devices and platforms other than desktop computers creates challenges. If we are unable to operate effectively on these platforms, our business, results of operations, and financial condition could be materially adversely affected.
As a result, brand recognition and the consumer experience with our mobile app will likely become increasingly important to our business. In addition, these new modalities create opportunities for device or systems companies, such as Amazon, Apple, and Google, to control the interaction with our consumers and disintermediate existing platforms such as ours.
I wonder if Apple and Google take a cut when booking on the app? That would not be good for bottom lines.
I do think at some point app store’s will be regulated.
If we are unable to adapt to changes in technology and the evolving demands of hosts and guests, our business, results of operations, and financial condition could be materially adversely affected.
In 2018, we began making incremental investments in upgrading our technology platform to a service-oriented architecture, improving data management, and increasing our service reliability, and we invested heavily in our technology in 2019.
Our future success will also depend on our ability to adapt to emerging technologies such as tokenization, cryptocurrencies, new authentication technologies, such as biometrics, distributed ledger and blockchain technologies, artificial intelligence, virtual and augmented reality, and cloud technologies. As a result, we intend to continue to spend significant resources maintaining, developing, and enhancing our technologies and platform; however, these efforts may be more costly than expected and may not be successful.
Another critical component to our future success will be our ability to integrate new or emerging payment methods into our platform to offer alternative payment solutions to consumers. Alternate payment providers such as Alipay, Paytm, and WeChat Pay operate closed-loop payments systems with direct connections to both consumers and merchants. In many regions, particularly in Asia where credit cards are not readily available and/or e-commerce is largely carried out through mobile devices, these and other emerging alternate payment methods are the exclusive or preferred means of payment for many consumers.
My take is that management is clearly thinking long term. I don’t know much about service-oriented architecture, but in my brief five minute Google searches about the subject it seems it’s a way to improve software implementation, re-usability and flow. All of which provide long term benefits.
I suppose authentication and blockchain technologies will help the company reduce fraudulent activity over time, and also improve security for the payments platform.
3D-Tours via AR certainly will be a good use case. This is available now, but many home owners likely don’t have the equipment to do it properly. AirBNB does contract photographers to photograph houses, so I’m pretty sure this is going to be implemented even further than it already has in the coming months and years.
We are subject to payment-related fraud and an increase in or failure to deal effectively with fraud, fraudulent activities, fictitious transactions, or illegal transactions would materially adversely affect our business, results of operations, and financial condition.
When hosts do not fulfill their obligations to guests, there are fictitious listings on our platform, or there are host account takeovers, we have incurred and will continue to incur losses from claims by hosts and guests, and these losses may be substantial. Such instances have and can lead to the reversal of payments received by us for such bookings, referred to as a “chargeback.” For the year ended December 31, 2019 and the nine months ended September 30, 2020, total chargeback expense was $92.2 million and $95.1 million, respectively. Our ability to detect and combat fraudulent schemes, which have become increasingly common and sophisticated, could be adversely impacted by the adoption of new payment methods, the emergence and innovation of new technology platforms, including mobile and other devices, and our growth in certain regions, including in regions with a history of elevated fraudulent activity. We expect that technically-knowledgeable criminals will continue to attempt to circumvent our anti-fraud systems. In addition, the payment card networks have rules around acceptable chargeback ratios.
Not sure how this happens when guests payment is not remitted until check-in.
Our payments platform is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing laws, rules, regulations, policies, legal interpretations, and regulatory guidance could materially adversely affect our business, results of operations, and financial condition.
We are subject to governmental economic and trade sanctions laws and regulations that limit the scope of our offering. Additionally, failure to comply with applicable economic and trade sanctions laws and regulations could subject us to liability and negatively affect our business, results of operations and financial condition.
Since July 2019, we conducted an internal review and have been holding related discussions with OFAC regarding certain user activity on our platform that may have been inconsistent with our policies and the requirements of U.S. sanctions laws. The scope of this review included activity by users in certain countries and territories that were or are the target of U.S. sanctions laws. In July 2020, OFAC issued to us a cautionary letter and no administrative penalty with respect to certain aspects of that review concerning the Crimea region of Ukraine. The internal review also covered certain other issues concerning our compliance with OFAC’s sanctions program, focusing in particular on our business in Cuba, and as to our compliance with restrictions on transactions with specially designated nationals. We submitted the results of that internal review in final Voluntary Self Disclosures to OFAC in September 2020. In October 2020, OFAC issued to us cautionary letters and a no action letter, and no administrative penalties, with respect to the disclosed matters involving specially designated nationals. OFAC’s review of our voluntary self disclosure regarding Cuba is ongoing and we remain in close contact with OFAC. Depending upon OFAC’s assessment of the Cuba review, we could be subject to potentially significant monetary civil penalties and litigation, and our brand and reputation could be materially adversely affected.
Define significant monetary civil penalties
We are subject to payment network rules and any material modification of our payment card acceptance privileges could have a material adverse effect on our business, results of operations, and financial condition.
Noted
We rely on third-party payment service providers to process payments made by guests and payments made to hosts on our platform. If these third-party payment service providers become unavailable or we are subject to increased fees, our business, results of operations, and financial condition could be materially adversely affected.
Ok
Our failure to properly manage funds held on behalf of customers could materially adversely affect our business, results of operations, and financial condition.
I wouldn’t suggest options trading with the float pool
If one or more of our counterparty financial institutions default on their financial or performance obligations to us or fail, we may incur significant losses or be unable to process payment transactions.
If a bank defaults on the holdings account, I’m pretty sure it’s a sign that the whole economy is headed for trouble, not just AirBNB
The failure to successfully execute and integrate acquisitions could materially adversely affect our business, results of operations, and financial condition.
Spend wisely
Because we recognize revenue upon check-in and not at booking, upticks or downturns in bookings are not immediately reflected in our results of operations.
Also this means that they should be very good at revenue guidance
If we do not adequately protect our intellectual property and our data, our business, results of operations, and financial condition could be materially adversely affected.
We have been, and may in the future be, subject to claims that we or others violated certain third-party intellectual property rights, which, even where meritless, can be costly to defend and could materially adversely affect our business, results of operations, and financial condition.
Our use of “open source” software could adversely affect our ability to offer our platform and services and subject us to costly litigation and other disputes.
Will bunch all of these together because they are similar and universal
We have operations in countries known to experience high levels of corruption and any violation of anti-corruption laws could subject us to penalties and other adverse consequences.
Are these countries really worth it? Some probably are, but it’s worth asking considering all the tax headaches…or maybe these are the countries that have the least tax headaches because a green handshake makes them disappear. 🤑
Our focus on the long-term best interests of our company and our consideration of all of our stakeholders, including our shareholders, hosts, guests, employees, the communities in which we operate, and other stakeholders that we may identify from time to time, may conflict with short- or medium-term financial interests and business performance, which may negatively impact the value of our Class A common stock.
We believe that focusing on the long-term best interests of our company and our consideration of all of our stakeholders, including our shareholders, hosts, guests, employees, the communities in which we operate, and other stakeholders we may identify from time to time, is essential to the long-term success of our company and to long-term shareholder value. Therefore, we have made decisions, and may in the future make decisions, that we believe are in the long-term best interests of our company and our shareholders, even if such decisions may negatively impact the short- or medium-term performance of our business, results of operations, and financial condition or the short- or medium-term performance of our Class A common stock. Our commitment to pursuing long-term value for the company and its shareholders, potentially at the expense of short- or medium-term performance, may materially adversely affect the trading price of our Class A common stock, including by making owning our Class A common stock less appealing to investors who are focused on returns over a shorter time horizon.
So I don’t necessarily take issue with what they are saying. However if you invest on a shorter time horizon, you definitely want to ponder over this. They are clearly saying that things may get worse before they get better.
This marks the end of risks related to the company in and of itself, but let me highlight a few points in the Risks Related to the Class A Shares, and General Risks of holding stocks that you need to be aware of:
We cannot predict the effect our multi-series structure may have on the market price of our Class A common stock.
For example, certain index providers, such as S&P Dow Jones, have announced restrictions on including companies with multiple-class share structures in certain of their indices, including the S&P 500. Accordingly, the multi-series structure of our common stock would make us ineligible for inclusion in certain indices and, as a result, mutual funds, exchange-traded funds, and other investment vehicles that attempt to passively track those indices may not invest in our Class A common stock.
So unless management wants to change the structure of the stock, ABNB will only be on the Nasdaq.
If you purchase shares of our Class A common stock in this offering, you will incur immediate and substantial dilution.
This company has a large amount of RSUs and SBC which will begin to be realized at the IPO and vest over the next 4 years. Additionally the employee compensation plan basically states that at a minimum, employees will get at least 1% of the company value in SBC until the expiration of the plan.
As a public reporting company, we will be subject to rules and regulations established by the SEC and Nasdaq regarding our internal control over financial reporting. We may not complete needed improvements to our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock and your investment.
To date, neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act because no such evaluation has been required. If our management is unable to certify the effectiveness of our internal controls, our independent registered public accounting firm is unable to express an unqualified opinion on the effectiveness of our internal control over financial reporting, we identify or fail to remediate material weaknesses in our internal controls, or we do not effectively or accurately report our financial performance to the appropriate regulators on a timely basis, we could be subject to regulatory scrutiny and a loss of investor confidence, which could significantly harm our reputation and our stock price, and materially adversely affect our business, results of operations, and financial condition.
We previously identified a material weakness in our internal control over financial reporting in connection with a revision to previously issued financial statements for the year ended December 31, 2017 relating to the provision for income taxes resulting from the incorrect use of tax attributes. We identified that the cause of the income tax provision adjustment was a lack of qualified tax personnel with an appropriate level of experience to review the use of tax attributes in accordance with tax ordering rules. While we remediated this material weakness as of December 31, 2018 through hiring additional experienced personnel, we can give no assurance that additional material weaknesses will not be identified in the future.
The failure to successfully implement and maintain accounting systems could materially adversely impact our business, results of operations, and financial condition.
In the third quarter of 2019, we implemented a new third-party revenue accounting system in order to automate our revenue accounting and reporting processes. System implementations of this scale are complex and time-consuming projects that require transformations of business and financial processes. Such transformations involve risk inherent in the conversion to a new system, including loss of information and potential disruption to normal operations. Additionally, if our revenue and other accounting or tax systems do not operate as intended or do not scale with anticipated growth in our business, the effectiveness of our internal control over financial reporting could be adversely affected.
I can’t state this enough…this company has had some serious tax issues before going public. It will continue to have complicated taxes due to it’s global nature and the fact that a significant portion of it’s transactions involve currency exchange.
Final Thoughts
In looking through the risks section, I learned quite a bit about the challenges facing AirBNB.
What most people think (and I thought this too) AirBNB is: A platform that connects people looking to rent a house for a vacation, with people who have rooms to rent.
What AirBNB really is: AirBNB is a brand that partners itself with millions of homeowners and tries to help them rent out their rooms to people looking for a vacation rental.
What’s the difference? Because AirBNB views themselves as a brand and a partner they provide services that a typical platform may not necessarily have to provide including:
Community support to resolve potential legal challenges
Insurance to protect their hosts
Refunds to dissatisfied customers in an attempt to protect the brand.
What’s the problem? These practices are expensive.
Because they are trying to build a brand as opposed to a platform, they take on some of the market risk that could otherwise go to a host, and they do this at cost to their bottom line.
Furthermore, because they are doing it in 220 countries they bring some additional challenges to themselves:
Currency Exchange
National Tax Laws
Local Tax Laws
Data Privacy Issues
Customer Support
Language Barriers
In my opinion, competition is not the biggest risk to this company. Nor is COVID-19. The biggest risk to this company is that they won’t be able to successfully and profitably provide the service they aim to provide, at the scale they want to.
This makes projecting future revenues and more importantly the profitability of these revenues very difficult.
My assumption is that it will be a long time before the company at scale consistently is able to turn a profit. In modeling profits, I would only assume a 15% net margin. Regardless of the gross margin. I use this number based on a comparison to Hilton, who unbeknownst to most, has a similar business strategy but with hotels. Hilton worldwide operates less than 5% of Hilton hotels. 95% are franchises to whom Hilton Worldwide provides some basic support services in exchange for a franchise fee. I envision that AirBNB at scale will have a similar structure but exchanging a franchise fee for a revenue take model. I do think the ability to have diversified locations and having no building costs will allow AirBNB to have greater revenues than Hilton long term.
After thoroughly analyzing the risks section, I may still invest in AirBNB depending on the valuation. I’ll go over more thoughts on valuation in Part 3 when I dive into the financials in the S-1. Please remember I’m only providing opinions and not financial advice. Have a great day everyone and just remember sharing is caring, so if you like the article share it or retweet it. The more people who read this, the more motivated I stay to keep producing content.