Airbnb Files for Its IPO; Cautious Investors Wait

After months of anticipation, Airbnb filed on Monday the documents for its long-awaited initial public offering. 

It’s expected to be one of the hottest and largest IPOs of the year.

Officially, Airbnb said it expects to raise $1 billion, but the startup is reportedly looking to get three times more.

The filing provides detailed financial information about the company for the first time, which confidentially filed for IPO a couple of months ago.

As expected, the online room-rental startup was hit hard by the pandemic. 

It reported revenue of $2.5 billion in the first nine months of the year, 32% down from the same period in 2019. During this time, it had a net loss of $696.9 million.

The company showed some recovery in the third quarter, as you can see in the chart below, which shows the quarterly gross booking value since 2017.

It reported a profit of $219.3 million from August to October, mainly due to cost-cutting initiatives. 

But Airbnb is expecting losses again in the fourth quarter, as COVID-19 cases are resurging in primary markets like the U.S. and Europe.

Even before the pandemic, profitability was still occasional. For instance, Airbnb registered positive quarter results in the second and third quarters of 2018 and the third quarter of 2019.

The company has been under intense pressure to go public. From investors, employees, and also from its financial situation.

Because of the coronavirus crisis, the San Francisco-based firm announced in May the cut of 25% of its workforce (nearly 1,900 employees) and raised $2 billion in expensive debt for emergency funding. It was also forced to freeze all its marketing spending for the year.

The impact was apparent in the Airbnb valuation. It was reduced by half, to $18 billion — the startup was valued at $31 billion in its last private valuation in 2017.

If it raises $3 billion in the IPO, as some sources say is the goal, the company could be valued at over $30 billion again.

Airbnb was born in 2008 as a website offering bookings for rooms during conferences. It achieved the “unicorn” status in 2011, with listed properties in 13,000 cities in more than 180 countries at the time, after being valued at more than $1 billion in a funding round. 

Travel Industry Halted

Airbnb is not the only company in its field struggling this year.

The leisure and business travel industry was halted after the pandemic. According to the U.S. Travel Association, from March to November, the sector lost an estimated $443 billion in revenue.

Some numbers show that Airbnb had a better third quarter than other top rivals. While the San Francisco-based company saw its third-quarter revenue drop 18%, Booking.com’s revenue, for instance, shrank 48%, and Expedia’s revenue was down 58%.

Besides Booking.com and Expedia, Airbnb listed in its prospect as its main rivals companies like Google, TripAdvisor, Trivago, Craigslist, and hotel chains.

Challenges & Risks

The strategy to generate consistent profits is still unclear since even before the pandemic hit, Airbnb had just a few profitable quarters.

Airbnb has never registered an annual profit since its launch 12 years ago.

According to the documents filed, Airbnb incurred net losses of $70 million, $16.9 million, and $674.3 million in 2017, 2018, and 2019, respectively. And it will lose money again this year.

Also, before the pandemic, the company was already showing slow revenue growth.

Some projects were paused as well, like investments in luxury accommodations, and so far, we don’t know when and if they will be back. 

The home-reital platform also revealed in the filing that the U.S. Internal Revenue Service informed it, in September, that it owed $1.35 billion, plus penalties and interest, over the sale of international intellectual property to a subsidiary in 2013. Airbnb said it would “vigorously contest” this tax adjustment.

Airbnb also faces regulatory challenges around the world. 

The European Union, for instance, is debating new guidelines that could impose much stricter regulations for companies that offer short-term rentals.

According to the analytics firm Transparent, which analyses global holiday rental listings, Airbnb has more than 50% of the European short-term rental market, while Booking.com has 37%, and Expedia has 22%.

There is a growing debate about how short-rentals can impact the shortage of long-term housing and affordable housing in many cities.

Many people aren’t aware, but even in New York City, it’s illegal to rent apartments for fewer than 30 days in most buildings.

San Diego, one of the top cities for Airbnb, plans to adopt a requirement for short-term rental properties to be registered in a database, making hosts likely to leave the platform. It was what happened in San Francisco two years ago.

Different Classes of Stocks

Airbnb announced it would have four classes of stocks. 

Class A stockholders will get one vote per share. Class B holders, which include the founders and early investors, will get 20 votes per share. And class C and H holders will not have any voting rights.

Its co-founder and CEO Brian Chesky will remain in control of the company following the IPO, thanks to shares with special voting rights.

The company will be listed on Nasdaq under the ticker ABNB, probably in December. 

Some of Airbnb’s investors include Hollywood actor Ashton Kutcher; the venture capital firm Sequoia Capital; buyout firms General Atlantic, TPG, Hillhouse Capital, and investment management firms Vanguard Group and Fidelity Investments.

The most common way for retail investors to participate in an IPO is after the shares start trading on a stock exchange.

Acquiring pre-IPO stocks is usually reserved for big investors. In the last few years, many pre-IPO investment platforms were launched, like EquityZen, eToro, ClickIPO, and Sharespost, which trade in the secondary market.

It’s important to highlight that investing in IPOs usually is too risky, especially for non-professional investors.

The company doesn’t have a track record of performance to show, and the stocks will probably go through a high volatility period after its debut.

If you are a long-term investor and believe in the company’s fundamentals, it could be a good option.

But even so, take a minute (better more) to think twice about your risk tolerance.