Airbnb is finally ready to go public

3rd September 2020  

by Gaia Giorgio Fedi

Airbnb, the sharing economy pioneer (and eternal IPO candidate) has finally decided to go public. And not via a direct listing, nor by a merger with a SPAC (special purpose acquisition company), but with a proper Initial public offering. The San Francisco-based company, which lets people rent out their spare rooms, apartments, villas, houses on trees and even castles, has announced at the end of August to have submitted a confidential filing with the SEC for a listing, without disclosing a specific date. 

The timing for this long-awaited event is not that surprising: despite the pandemic still looming over markets and global economies, Airbnb is joining a parade of tech companies planning to list by the end of 2020 or early 2021, including the food delivery companies Doordash and Instacart, as well as the software company Palantir, the stock trading app Robinhood, the cloud-based data-warehousing company Snowflake, and the dating app Bumble. 

A heavy blow from the crisis

Yet, the current context is not as bright as it might have been, say, a year earlier. The company has suffered heavy consequences from the Coronavirus crisis: the company's bookings dropped aggressively during the crisis and the second quarter revenues plunged 67% to $335 million. As a result, the management was forced to lay off 25% of its staff, or roughly 1,900 employees, to cut costs. 

A real pity, because before the pandemic had put global travel on halt (subsequently freezing short-term rents) Airbnb had come closer than Uber or other renowned unicorns in turning a profit. It had turned a positive Ebitda in 2017 and 2018 (but not in 2019). Then the pandemic arrived. The company reacted securing funds to get through the crisis, raising $1 billion in April in equity and debt from Silver Lake and Sixth Street Partners, and another $1 billion from Fidelity, T. Rowe Price and BlackRock, along with Apollo and Oaktree. In these rounds its private valuation dropped to $18 billion, down from the $31 billion figure it had reached in 2017.

A traditional Ipo

The challenging context might also explain why Airbnb changed plans about the listing technical modality. At first it was suggested that the company might be considering a direct listing: a non-traditional listing, in which only existing shares are sold and the process does not involve intermediaries. A path already followed by other venture-backed companies, such as Slack. The reason behind this possible choice was that, at the time, the company was thriving and did not need to raise any new money, and was planning a listing just to allow employees and investors to cash out. But then things suddenly changed: now some fresh money would be useful.

Then recently, according to a scoop by Bloomberg, the company was reportedly approached about a merger with Bill Ackman's SPAC, Pershing Square Tontine Holdings. SPACs lead the latest trend in finance: instead of the usual listing process, in which a company sells its shares to the public with an Ipo, in this case the Ipo is pursued by a special vehicle with the intention of acquiring the company, that finally finds itself listed via the merger with the vehicle. Pershing Square Tontine Holdings completed the largest SPAC IPO on record in July, equipping the vehicle with a minimum of $5 billion of cash equity capital to accompany a private company on the stock market. Ackman did not disclose which the target was, hinting at an interest for "high-quality, venture-backed businesses" and "mature unicorns." Yet Airbnb turned down the offer, even as, according to unnamed sources cited by Bloomberg, it has allegedly not completely ruled out a deal with Ackman.

A group of friends, struggling to pay the rent

The company has gone a long way from its start. First, there was the real estate bubble in San Francisco, which made rental prices stellar-high and convinced three friends to be the first to peer-to-peer services in housing accommodations.

The unicorn story starts with two roommates, Brian Chesky and Joe Gebbia, who, after moving to San Francisco in 2007, came up with the idea of putting an air mattress in their living room and turning it into a bed and breakfast: the housing cost was high and they looked for a solution to help them pay the rent. Then another friend, Nathan Blecharczyk, joined the duo as the Chief Technology Officer and the third co-founder of the new venture, which was named AirBed & Breakfast. They put together a website that offered short-term accommodations, breakfast (and a business networking opportunity) at a cheaper cost. It was a project designed for people who had difficulties in finding affordable accommodations in a saturated market, to respond to a specific need, by the very same people who had experienced that need. To raise money for the project, the founders sold “Obama O” cereals for 40 dollars, making $30,000. Then in 2009 they partnered with Y Combinator, raised $20,000 and expanded their offer. They flew to New York to promote the site, then came back to San Francisco to present the project to West Coast investors and they shortened the name of the company into Airbnb.

At that point, the company's growth was unstoppable. In April 2009, the company received seed money from Sequoia Capital. In November 2010, they raised financing from Greylock Partners and Sequoia Capital in a Series A round, and announced that out of 700,000 nights booked, 80% had occurred in the previous six months. In June 2012, Airbnb announced its 10,000,000th night booked. Then it opened offices in London, Hamburg, Berlin, Paris, Milan, Barcelona, Copenhagen, Moscow, and São Paulo. Then came along Sydney and Singapore (2012), the design revisions to the site and mobile app and the new logo, Bélo (2014), the expansion to Cuba (2015). In January 2017, Airbnb led a $13 million investment in restaurant reservation-booking app, Resy, and in February 2018, the company announced Airbnb Plus, a collection of homes that have been vetted for quality of services, comfort and design, as well as Beyond by Airbnb, which offers luxury vacation rentals. By October 2019, two million people were staying with Airbnb each night.

Yet, it was not all puppy dogs and rainbows. The company had to face pressions from regulators and local communities, or violation of local housing laws, tax law or simply for disrupting the housing business at the expenses of traditional players. The disruption brought to the sector also triggered some collateral effect along the way, such as the skyrocketing of rental prices in tourist cities around the world, which are often no longer tuned on the local cost of living but rather on the price travelers are willing to pay for a short-term stay.

Nonetheless, there are many reasons to think Airbnb played a positive role for many people, offering them a new way to travel or to supplement incomes.

Why it matters

Ok, Airbnb's business has been suffering lately and it is not turning any profit yet. The context remains challenging, as travel might not return to normality anytime soon. And investors still remember the disappointing IPOs from venture-backed big shots such as Uber and Lyft, or the WeWork fiasco. Then why should this listing trigger any enthusiasm on the market? Just to allow employees and investors to cash out? Not really.

First of all, travel is bouncing back, as the latest performances from airline stocks suggest, and this is surely positive for Airbnb, which results have been improving from June, when the company’s gross bookings bounced back to last year's levels. Furthermore, despite a lack of visibility on the global economy, stock markets in general – and the US market in particular – have continued to grind higher, led by technology growth stocks, and this factor would likely offer support for a positive outcome of Airbnb's listing.

But there is more. Airbnb is not just a mature unicorn opening a way for investors to cash out and offering an investment opportunity for mutual funds and retail investors. It is the pioneer of sharing economy, the company that changed, once and for all, the way people think about travel. It revolutionised the accommodation business. And it was the forerunner of the so-called “stakeholder capitalism”, which focuses on what is good for society over short-term profits, and has become increasingly important since the market switched heavily its focus on ESG and SRI investments.

It is itself a symbol of disruption.