The spreadsheet gives assumptions about the year$-$over$-$year $($YOY$)$ growth of revenues and

related expenses for $2024-2030.$ These assumptions come from analyst reports and Airbnb management

forecasts. Combining these sources gives a bumpy growth forecast for the next few years which is why

the YOY growth estimates do not follow a smooth pattern at first. Use the base case assumptions in the

excel sheet to build a forecast of earnings and free cash flows for the years $2024$ to $2030.$ Specifically, start

by forecasting revenues each year. Then, using these forecasts, compute the associated $$cost of

revenue$,$ depreciation and capital expenditures. Cost of revenue are all costs of revenue not including

depreciation, so that Revenue $$ Cost of Revenue $=$ Earnings Before Interest Taxes Depreciation and

Amortization $($EBITDA$).$ Subtract off depreciation to get EBIT. Continue as we did in our capital budgeting

exercises until you eventually get to Free Cash Flow. You can assume a tax rate of $21\%$ and negligible

changes in net working capital. You can also assume an opportunity cost of capital of $14\%$ for all the FCFs$.$

$3.$ Beyond $2030,$ you will need to make an assumption about Airbnb$$s long$-$term growth once it

becomes a mature company.

$$ Start with the free cash flows you forecast for $2030$ and assume that they will grow by $3\%$ to $2031$

and continue growing at $3\%$ thereafter. You can then use the growing perpetuity formula to value

all the cash flows after $2030.$ By doing this, you will have what is called a $$terminal value$$ or

$$continuation value$$ for Airbnb as of the end of $2030($one year before the first cash flow in the

growing perpetuity$).$

$4.$ To avoid timing complexities, we will assume that it is now the beginning of $2024$ and that the

first cash flow $($the $2024$ FCF$)$ will be generated exactly one$-$year from now, at the end of $2024.$ Discount

all cash flows back to the beginning of $2024$ using a $14\%$ cost of capital. The sum of total of these

discounted cash flows is the estimated total enterprise value of Airbnb at the beginning of $2024.$

Enterprise Value $=$ Equity $+$ Debt $($Cash and Marketable Securities$).$

Airbnb Case$|$ MGT $180$R $|$ Winter $2024$ Page $2$ of $2$

$5.$ To arrive at the price per $($equity$)$ share, you must subtract Airbnb$$s debt from its enterprise value

and then add Airbnb$$s cash and marketable securities$.$

$$ Airbnb has $$2\mathrm{.}3$ billion in debt and $$11$ billion in cash and marketable securities$.$

$$ Airbnb has $648$ million shares outstanding. Use this information to calculate the price per share.

$6.$ Next, perform some sensitivity analysis.

$$ Given the uncertain regulatory environment, use the Upside and Downside scenarios for YoY

revenue growth to compute the associated Upside and Downside stock prices.

$$ Also, using the base case, check the sensitivity of your valuation to the assumptions about

Airbnb$$s cost of revenue. The sheet assumes that Airbnb will be able to stabilize its cost of revenue

to be $50\%$ by $2030.$ However, competition, higher product support expenses, or increased

advertising could eat into this. Calculate Airbnb$$s stock price if Cost of Revenue evolves as in the

$$Sensitivity CoR$$ row in the spreadsheet.

$7.$ As of the writing of this case, Airbnb$$s stock price was $$140.$

$$ Consider what it would take for your forecast to produce a valuation that equates to a

$$140$ stock price.

$$ By changing your revenue growth assumptions, find a set of YoY growth assumptions that would

produce a stock price of approximately $$140.$

$$ With these revenue assumptions in place, compute the compound annual growth rate $($CAGR$)$ in

FCF from $2024$ to $2030.$ For example, if your estimate of $2024$ FCF is $$1,000$ and for $2030$ is

$$10,000,$ then you would use the $$RATE$$ function in Excel: $=$RATE$(6,0,-1000,10000).$

$8.$ An alternative way to value a stock is by use of multiples. NOTE: There is no reason to expect the

multiples$-$based valuation to agree with your discounted cash flow $($DCF$)$ valuation. This may be true for

a couple of reasons: $1)$ It is difficult to find a reasonable comparison company, and $2)$ Airbnb may

command a premium $($or discount$)$ valuation depending on its fundamentals.

$$ Start by valuing Airbnb based on your $2024$ projected EBITDA and using the hotel industry average

Enterprise Value$/$EBITDA ratio of $14\mathrm{.}9.$ This will give you a total company value which you would

replace your NPV of FCF in your share value calculation $($you still need to subtract debt and add

cash and marketable securities before dividing by shares outstanding to get the price per share$).$

$$ Do the same with the average EV$/$EBITDA ratio for Internet$-$based companies: $19\mathrm{.}3$