How does Airbnb make money?

With a solid, no-nonsense business model, Airbnb is the apple of Silicon Valley's eye

Few startups see the kind of hockeystick growth that Airbnb has witnessed in the last year. The five-year-old startup recently revealed that it has served some nine million guests since it was founded. The interesting thing about that number is that more than half of those guests—five million, to be exact—used the platform in the last year. It took Airbnb four years to serve its first four million guests—and then BLAMMO! Another five million as of October 2013.

To use a tired phrase, it’s five years of straight-up hockey stick growth. At Y Combinator’s annual Startup School event, co-founder and CTO Nate Blecharczyk asked: “What happens when you append five hockey sticks together? What does that look like?”

It looks like a shit ton of hockey sticks.

Airbnb has ALL the hockey sticks. 

So how does it make money?

Airbnb is one of those rare startup gems that makes money in a pretty direct way: by charging its users. While other startup superstars like Facebook and Twitter have shakier advertising models, Airbnb makes money by charging service fees to hosts and guests alike.

The guest fee ranges from 6-12%, depending on the size of the reservation subtotal. The higher the subtotal, the smaller the reservation fee percentage—which is non-refundable if the guest cancels. (I learned this the hard way when I canceled a second night in a townhouse in Portland after neighbors spent most of the night partying on the front lawn.)

Airbnb also charges hosts a 3% host service fee. For example, if a guest books a four-night reservation at $100 a night, plus a $50 cleaning fee, the 3% host service fee is applied to the $450 subtotal, which works up to $13.50.

The company recent raised a massive $200 million Series C round last year from Sequoia Capital, Andreessen Horowitz, General Catalyst Partners, Crunchfund, Ashton Kutcher, and Founders Fund. Airbnb has raised $326 million altogether at a $2.5 billion valuation.

Private company analyst Privco has estimated Airbnb’s 2012 revenue to be $189 million. But Wedbush Securities analyst Michael Pachter forecasted at the beginning of the year that it won’t be long before Airbnb is pulling in $1 billion in revenue per year. He bases that number on his estimation that Airbnb rented out 12-15 million room-nights in 2012, and that that number could “eventually” mushroom to 100 million room-nights per year. At that point, Pachter mused, Airbnb could be drawing in $1 billion per year in revenue.

Sure. Why not? “Eventually,” it could be renting out 200 million room-nights per year, at which point it will be making $2 billion per year. But that’s probably not a far-fetched forecast.

Airbnb revealed last month that it now has more than 500,000 homes and 350,000 hosts in 34,000 cities around the world. Some 1,000 new hosts join the site every day.