What’s the Outlook for Airbnb’s IPO?
It has been a troubling time for the travel industry, and Airbnb has had an even tougher year. Strapped for cash, Airbnb completed its filing for an IPO on the 16th November, which is expected to be listed before the end of the year. However, this comes amidst a wave of recent successful public offerings this year from other tech companies, including Lemonade, McAfee and Snowflake. Whether this will prove to be a woeful event or a step in the right direction for the global travel firm is yet to be seen.
Airbnb’s S1 filing provides the first in-depth look at the company’s financial health since its inception in 2008. This paper brings to light Airbnb’s losses of $700m in the first 9 months of this year and its raising of $2bn in high-interest debt to stay afloat. The company also paid-out just over $204m of its $250m fund that was set up to reimburse hosts a quarter of the booking revenues lost from coronavirus cancellations.
On a more detailed look, more cavernous issues emerge. By 2019, Airbnb was experiencing its third straight year of slowing growth, with revenues increasing by 32% from the previous year. By comparison, Uber, who is no stranger to significant market struggles, increased revenues at a rate of 42 per cent in the final full year before its IPO in 2019. This calls into question Airbnb’s long-term growth potential as a travel company for investors. Airbnb has attempted to counteract slowing growth by branching out into new areas of the industry, such as with Airbnb Experiences in 2016. However, this was unsuccessful and Airbnb subsequently acknowledges its inability to “grow new offerings and tiers” as a risk factor in its filing.
The total number of listings on Airbnb was 7.4m as of the end of September, of which 5.6m were “active” listings. The company relies on a wide range of rental options to offer value to its travel guests. This may be challenged by the impending recessions, meaning cash may be tighter for hosts and force them to sell off their holiday homes and second apartments.
However, Airbnb has proven to adapt with this recent crisis. Since the start of the pandemic, the travel company has cut back on staff fees by 25% and paused discretionary spending. Given that in 2019 the company spent $5.3bn to make $4.8bn in revenues, some may herald this as an essential improvement. In addition, considering that now 91% of guest traffic arrives organically and “Airbnb” is now used as a verb for their travelling styles, this could prove a turn in the right direction. The hope is that now the technology platform is largely established and the brand-well known, these costs will be dramatically reduced.
Updated restrictions implemented worldwide means consumer confidence remains low for international travel. But Airbnb is keen to point out that its business is not overly reliant on a handful of big cities. None of the 100,000 cities it operates in is responsible for more than 2.5 percent of revenue, showing it has a strongly diversified portfolio. This puts the company in a stronger position in anticipation of tightening regulation, such as caps on the number of nights that can be legally offered by a host. This stands at 90 nights in London and 120 in Paris. Moreover, before the pandemic, domestic travel made up 52% of Airbnb's business. It's currently almost 80%, demonstrating a strong ability to adapt and still offer value to its consumers.
Time will tell how Airbnb performs in its public offering. The future holds many significant hurdles for the company, from government restrictions on travel to increasing legislation on short-term rentals. Given that Airbnb is ridden with debt and has failed to turn a profit for the last 3 years, it is certainly enough to put off most investors. However, it’s economic moat, iconic brand and proven robustness against the pandemic may be just enough to bring on-board some intrepid investors. Will you be investing?