The value of X, for any X at all, is what someone else is willing to pay for it. That is how markets work. Any kind of market. And it works for everything from pricing apples to pieces of art to companies.
If people are willing to pay $1 billion for your company, it is a billion dollar company. If nobody is willing to pay you a dime for it, it is worth nothing. Your revenue is an input factor into what people are willing to pay, but doesn't determine the price.
If you study financial theory, the theoretically correct price for a company is the "expected present value of future revenue". Meaning that if you look at all future revenue that it should ever make, divide that revenue by a discount factor for the fact that a dollar tomorrow is not worth a dollar today (and further discounts for risk), that number should be the present value of the company.
So a company with little revenue and good growth prospects may be worth much more than a company with great revenue which is going off of a cliff. It is worth this both in practice and in theory. And anyone who says otherwise simply doesn't understand how to value companies.
Note that in practice, in illiquid markets (which stock in privately held companies always is) the variance of market value from the theoretical relationship becomes wider. We still price companies based on what someone, somewhere, was willing to invest in it. We do that because someone educated people, who is paid to get this right, with possession of more facts than we probably are, decided that this was a reasonable price after doing research. They may be wrong, but the last price paid is the best market indicator of the value of the company.
All this is true, but has no bearing on the common use of language. When a trader refers to Acme corporation as an $N company, he is indicating that $N is its annual revenue, not its market capitalization.
The other common usage that I've seen is to refer to a company as being worth X billion a year. In that usage the a year bit is not dropped, because dropping it would introduce confusion with the first common usage.
I have no horse in this race, but $x billion company has traditionally referred to revenues. The usage of "___ company" to mean valuation is new (last five years), rare among traditional press outlets, and overrepresented among the startup/Silicon Valley crowd. The idiom may be changing in meaning, but if so, it's in the early stages.
AirBnB has a history of clever and aggressive PR, and this title is probably deliberate in that regard.
The first three google results for "billion dollar company" all refer to companies with billions in revenue.
According to Google and every economics class I ever took, people assume it refers to revenue. In common vernacular, "billion dollar company" means a company that actually generated a billion dollars in revenue, not speculative investment.
I mean come on... why is it fair to refer to AirBnB as a billion dollar company when there are actually companies generating a billion in revenue?
Nobody's paid $1B for AirBnB. The investors paid a price for a % of AirBnB that equates to a valuation of $1B. In other words, they've placed a bet that AirBnB will be worth more than $1B.
This is no different than how we calculate the market cap for any company.
And nobody's paid nearly $325B for Apple. But someone just bought a bit under 1 billionth of the company for about $350, so that's what the market cap works out to be.
I do understand what you're saying. However, the fact that AAPL shares are more liquid than AirBnB shares makes a difference to the way I think about valuations. APPL could be up or down tomorrow based on the example you just described but the same won't be true of AirBnB. If they IPO'd tomorrow, would they get a valuation of $1B? I don't know.
I'm not disagreeing with the definition. I'm trying to point out that even though the maths might be the same, I see a difference between startup valuations (based on funding rounds) and market caps (shares * share-price) of listed companies.
When AirBnB posts a billion dollars in revenue, then it will be a "Billion Dollar Company."