The online platform Airbnb recently filed for its initial public offering (IPO) with the plan of going public in December 2020. The company seeks to raise $3 billion which would value it at as high as $30 billion according to the Wall Street Journal. Here is everything you need to know about the upcoming IPO and whether you should be investing in it or not.
Airbnb’s Falling Revenues & Increasing Losses
As per the filings, Airbnb’s revenue had increased 32% year over year to $4.8 billion in 2019, with its gross bookings rising by 29% to $29.4 billion. With the arrival of 2020 along with the pandemic, the revenue dropped 32% year over year to $2.5 billion in the first nine months of the year while gross bookings crumbled down by 39% to $18 billion.
The San Francisco-based marketplace has not seen a positive bottom line yet, which has caused a mixed reaction towards its IPO. In 2018, Airbnb’s net loss was $16.9 million which rocketed by 3,890% to $647.3 million in 2019. The pandemic further added to the losses and they increased year over year from $322.8 million to $696.9 million for the first nine months of 2020. Despite the net loss for the nine months, the company reported a profit for the third quarter of 2020 of $219.3 million.
How Airbnb Survived Through The Pandemic
Initially, the company planned to start the IPO process in March 2020, which was halted by the pandemic. As of 30 September 2020, Airbnb has 5.6 million listings worldwide with over four million hosts and has served over eight million guests. The online marketplace operates in 100,000 cities and more than 220 countries.
Being valued at a whopping $30 billion seems like a great achievement considering the fall in the value of the company earlier this year. Airbnb was valued at $31 billion back in 2017, however, the company’s private valuation fell by 42% to $18 billion earlier this year as it rushed to secure a loan to deal with the pandemic.
As people use the service most during their summer vacations, the firm performs best during its third-quarter every year. However, since 2020 has been unlike every other year considering the uncertainties, Airbnb’s revenue fell massively by 72% for the quarter ending June, doubling the company’s loss.
The following quarter ending in September was relatively better for the company as the revenue decreased by only 18%. The company cut its costs leading it to earn a profit of $219 million in the third quarter.
Brian Chesky’s Role
CEO Brian Chesky took timely decisions to keep Airbnb afloat. The Wall Street Journal notes that Chesky raised capital to keep the business afloat, laid off a quarter of employees, and eliminated noncore businesses. This led to a decrease in the expenses by 22% for the first nine months of 2020.
What’s more, is that Chesky was able to tap into a new source of demand through the redesigning of the Airbnb app. As the pandemic continued, people chose to visit less crowded neighboring areas. Chesky recognized this demand and provided customers with a safer alternative as compared to hotels, capturing a new revenue stream.
Risk Factors For Airbnb
Even though Airbnb has reported losses every year, its growing revenue could lead investors to expect a positive outlook for a post-pandemic world. However, there are still some challenges and risks that they must be aware of.
Strict Regulations
Airbnb grew in popularity as it provided travelers with cheaper staying alternatives and gave an additional revenue stream to people who had idle space. However, there have been several complaints from both, the hosts and the guests. In some cases, the hosts were blamed for misleading guests with poor accommodation and discriminating based on color and race. While in other cases, guests were accused of damaging the host’s property.
This has led Airbnb to be sued by guests and questioned by Congress. But Airbnb represents itself as merely a technology platform that helps people connect. There have been increasing regulations banning short-term rentals which could be threatening for Airbnb.
Highly Competitive Environment
When the company launched initially, it provided a unique service that caught hotels and online travel agencies (OTAs) off guard. However, these companies have now responded by providing similar services over the years leading to increased competition for Airbnb. Here are a few companies that are competing with Airbnb:
- Booking Holdings has now started to give the option of home and apartment listings on Booking.com and Agoda Home
- Expedia acquired HomeAway five years ago and expanded its Vacation Rentals by Owner (VRBO) platform
- The French multinational Accor acquired the London-based short-term rental platform One Fine Stay four years ago
- The American giant Marriot International collaborated with Hostmaker to make short-term rentals accessible
Airbnb’s Lack of Profitability
The company warned that it may not be able to achieve profitability since its adjusted EBITDA and free cash flow have been falling. It also pointed out that this trend could continue. Airbnb further revealed that revenues have been declining and would continue to do so in the future.
Moreover, the deterioration of U.S – China relations could damage Airbnb’s growth in China. Coupled with the second wave of the pandemic expected to continue till the beginning of 2021, this could hurt Airbnb’s demand. Even though the vaccines are expected to be effective in 2021, there is still a lot of uncertainty about the time when travel would continue as it did in the pre-coronavirus world.
Investing In Airbnb Stock
Neither the date nor a price range has been settled by the company yet for the IPO. However, Airbnb has applied to trade Class A common stock on the Nasdaq Global Select Market under the symbol “ABNB”. Since there aren’t still many chances of the pandemic ending any time soon, it is possible that Airbnb’s revenues would fall even more leading to more losses in the final quarter of 2020.
But Airbnb still has the first-mover’s advantage. If the company can deal with regulatory threats and lower its costs after the pandemic ends, its stocks might be worth buying. Still, it is likely that the IPO frenzy could cause the prices to go up, so waiting for the prices to go down could be a useful strategy.
I am Sophia william, author of World Stock Market. I have a degree in journalism from the University of Missouri and I have worked as a reporter for several news websites. I have a passion for writing and informing people about the latest news and events happening in the world. I strive to be accurate and unbiased in my reporting, and I hope to provide readers with valuable information that they can use to make informed decisions.
