IPO Watch – Airbnb finally lists

The popular home-sharing platform Airbnb is due to list on the NASDAQ tomorrow, with a price range of between US$56 and $60 a share, up from $44 to $50. The float has been a long time in the making, with plans to list dating back to 2015. It’s welcome news to the investors that have waited patiently for this opportunity.

For those that don’t know, Airbnb is the story of how three tech entrepreneurs started an air mattress rental business in their apartment, and built it into a $31 billion company.

According to the prospectus, “Airbnb started with two designers trying to solve a problem: how to pay their rent. The year was 2007. Brian and Joe – two of our founders and friends from design school – were looking for a way to cover the cost of their San Francisco apartment. That week, they saw an opportunity.

An international design conference was coming to town, and every hotel was sold out. They quickly created a website, AirBedandBreakfast.com, with the hope of renting airbeds in their apartment to attendees of the conference. The key was trust. The solution they designed combined host and guest profiles, integrated messaging, two-way reviews, and secure payments built on a technology platform that unlocked trust, and eventually led to hosting at a global scale that was unimaginable at the time.”

Fast-forward to today, and Airbnb has grown into a global behemoth that hosts listing spaces of all kinds, in communities of all sizes, in nearly every corner of the world. Hosts even share their interests and talents through Airbnb Experiences.

Here are the key details of the IPO:

• ABNB is active in over 200 countries and 81,000 cities;
  
  
• The US has the most listings, 660,000, with France and Italy next at 485,000 and 340,000;
  
  
• The company has already raised $5.4 billion in private funding rounds, with the latest cutting $20 billion of its value;
  
  
• ABNB is seeking to raise $3.4 billion;
  
  
• The raise will value the company at $42 billion;
  
  
• The proceeds will be used for a range of purposes including working capital, operating expenses, capital expenditure, research and development, acquisitions, and any tax requirements. 
  
   

After reading Airbnb’s 349-page prospectus lodged with the Securities and Exchange Commission, it does seem strange that the company has gone out of its way to explain just how bad business was and still is, all due to the Coronavirus pandemic. In-fact the term “COVID” appears 215 times. Reading on, the prospectus doesn’t instil confidence of a business doing well. Instead, the prospectus paints the picture of a once-successful business that has unfortunately fallen victim to COVID-19. Without the successful raising, it could find itself in dire straits. Airbnb first revealed plans to go public in March but the pandemic and subsequent standstill of the global travel, hospitality and hotel industries threw a monkey wrench in the works. Revenue dried up, and Airbnb was forced to borrow $1 billion at 9%.

Reading through the prospectus, here is what might worry prospective investors:

• Airbnb faces investor pressure to list after saying it will compensate its original workers with stock options. But that equity becomes worthless and expires if Airbnb does not go public before the end of the year.
  
  
• The travel sector is in absolute shambles. Even though Australia is close to opening its borders, the US along with the rest of the world is yet to hit peak Coronavirus let alone open borders.
  
  
• Revenue came in at $2.5 billion in the first nine months of the year, down from $3.7 billion a year earlier. The net loss more than doubled to $697 million.
  
  
• “The key risk factors for Airbnb are the long-term impacts on travelling, from the COVID-19 pandemic and whether it has changed people’s habits. The company is also a target for regulation by major cities that are protecting their hotel industry against people lending out their private homes at lower prices than hotels.”
  
  

Airbnb has been a loss-making business since it launched, and it may not be able to achieve profitability going forward. It is concerning. But that doesn’t mean the business won’t do well. Some of the most famous tech companies, such as Uber and Dropbox, are yet to break even. The reason they are still in business or trade on lofty valuations is because the market believes there is a good probability that the company will be profitable in the future even though they are losing money at the moment.

Can the same be said about Airbnb?

The company will likely turn a profit, but not anytime soon. It could take years to vaccinate everyone in the US and the world. That means travel may remain under a cloud for some time which means revenue will continue on a downward spiral; but on the other hand, people will spend less time travelling globally and more time in their own country, which should see growth in “house swapping.”

Ishan Dan

Ishan is an experienced journalist covering The Inside Investor and The Insider Adviser publications.