Estimate Airbnb's Revenue

Approach

Generally, for revenue estimation questions, it helps to approach the problem from the bottom up. First, we'll start with understanding how many transactions the hospitality industry has on a yearly basis in the US market. We'll then factor in our estimate of Airbnb's market share of the hospitality industry market, to estimate how many transactions Airbnb makes per year. Then, we'll estimate the average price of a transaction, accounting for how much of a cut Airbnb takes. Lastly, we'll scale up the estimate to include the international market.

Transaction cut

For the purpose of this interview, let’s focus on Airbnb hosts. Let’s assume that Airbnb earns money on a per-transaction basis — Airbnb takes a percentage cut from the total price of the booking. Let’s assume a reasonable transaction cut of about 10%.

Total number of bookings

Now, we’ll need to estimate the total number of bookings on the platform per year.

We can start with the US market and estimate that there are 100M US households (be sure to memorize this fact from the PM Estimation Fact Sheet). There are about 15 holidays in the calendar year, and most working class citizens get about 15 days of paid time off, for a total of 30 potential dates to travel. Therefore, we can estimate that on average, an American household will go on vacation 15 days of the year (assuming that half of the 30 available travel dates are actually used).

Let’s assume that, at its scale, Airbnb has about 15% market share of the hospitality market — this means that 15% of vacation-goers use Airbnb for travel. This means that 15M American households use Airbnb for 15 days of the year. 15M households * 15 travel days = 225M bookings on the Airbnb platform per year.

Total price of bookings

Now that we have the total number of bookings on the platform, let’s estimate the money that Airbnb receives per transaction. We can assume the median booking is for a party of three, which we estimate to be about $150/night ($50/person is the rate of an average motel, with which Airbnb is priced competitively). We calculate the expected revenue to be $150 * 225M * 10% = $3.4B annual revenue.

International market

We have a $3.4B estimate for the domestic market. Now, we’ll need to consider the worldwide market. We can quickly estimate this by estimating AirBnB’s market share in the US versus other countries. We estimate that 80% of Airbnb's revenue comes from Americans, since internationally, many users may not know of Airbnb or there may be local competition. Thus, we can simply divide our total by 80% to get $4.25B as our final estimate.

Additional factors

Below are some additional important factors to mention in your estimation:

• We chose to estimate the median booking price for an Airbnb booking to be $150. However, the distribution for the Airbnb bookings likely has a long tail distribution with a bell curve. Most bookings fall within the bell curve range, but there are some outlying, very expensive Airbnb bookings. We should factor this into our analysis by either increasing our median estimation, or treating the premium Airbnb bookings as a separate category, with a different median.
• Airbnb Experiences, if you have time in your interview, is worth investigating. However, this is a particularly challenging one to estimate, since there isn’t much of a clear existing market for this product for comparison. The best approach is to estimate the market for travel agent experience bookings and then estimate Airbnb's market share.