Airbnb pushes IPO despite coronavirus uncertainty

Airbnb pushes IPO despite coronavirus uncertainty
Source: Gabrielle Lurie, Reuters
With a travel and tourism industry that’s still in tatters and a virus yet to be fully brought under control, Airbnb’s IPO still has significant uncertainty with which to deal with.

The vacation rental platform Airbnb, Inc. is bracing for an initial public offering (IPO) targeted for December 2020, despite the significant impact wrought on its business and the travel and tourism industry more generally by the coronavirus pandemic

The San Francisco-based company is aiming to raise some US$3 billion in its IPO. Airbnb’s public offering comes after the company laid off a quarter of its workforce earlier in the year and was forced to seek new avenues of funding to keep the business afloat.

Yet, despite the difficulties it faced at the height of the pandemic, Airbnb’s business has rebounded quicker than expected. Investors and executives alike are keen to begin the IPO process as soon as possible, which could provide the company with extra capital and a higher valuation, perhaps undoing the damage caused by lockdown orders and a global shutdown in travel and tourism.

With a travel and tourism industry that’s still in tatters and a virus yet to be fully brought under control, Airbnb’s IPO still has significant uncertainty with which to deal with.

Coronavirus rebound

With the onset of the coronavirus pandemic around the world, Airbnb faced an unprecedented challenge to its business operations.

With lockdown orders and the decline in global travel and tourism, Airbnb’s core business, its popular short-term home rentals for vacationers and travelers, was under immediate jeopardy.

In response to the pandemic, Airbnb allowed its customers in March to cancel their bookings without penalties, while also providing hosts financial support that accounted for some of the revenue lost by future guests canceling their bookings with no penalties.

In addition, the company secured funding from private equity firms Silver Lake and Sixth Street Partners, raising US$1 billion in debt from the two firms. Silver Lake co-chief executive officer Egon Durban claimed the funding was not a “bailout,” but a strategic investment in “Airbnb’s diverse, global, and resilient business model.”

With the massive drop in bookings, with cancellations amounting to around US$1 billion in lost revenue, Airbnb executives were nonetheless forced to make cuts. In May, the home-rental platform announced it was laying off around 1,900 of it’s 7,500 strong global workforce, about 25%.

The announced layoffs were mostly concentrated in Airbnb’s noncore products, such as its transportation, Airbnb Studios, hotels and lux efforts.

In cutting back these sectors it had hoped to expand its operations into, Airbnb was focusing on its core product: short-term home rentals, particularly in rural areas away from coronavirus hot spots and cities, that were within driving distance.

This strategy largely worked. Despite laying off thousands of its workers, Airbnb’s focus on providing short-term home rentals saw bookings slowly increase once more, especially as customers were unwilling to patronize hotels in proximity to large numbers of other people.

In the midst of the pandemic, Airbnb touted its strengths in continuing to provide an experience for customers that was both safe and enjoyable. The ability of guests to rent a home solely for themselves and a spotlight on new coronavirus cleaning guidelines, with more than one million listings declared as possessing an “Enhanced Clean” certification in August, was largely responsible for the slow uptick in Airbnb bookings.

Airbnb’s slow rebound mirrored a broader resilience in the tech industry. Despite the pandemic and subsequent economic crisis, funding for tech startups continued to flow. In the second quarter of 2020, startups in the United States raised some US$34.3 billion, down only slightly from the US$36 billion the previous year.

According to Airbnb co-founder and chief executive Brian Cheksy, Airbnb’s gradual recovery, despite the broader collapse in travel and tourism, showed that “people want to travel, they just don’t want to get on airplanes … they don’t want to go for business.”

What they did want, however, was the ability to stay away from home, but away from other people, a service that put Airbnb ahead of traditional hotel rivals during the pandemic.

With its recovery ongoing, the hopes of an Airbnb IPO in 2020 seem to be reignited. In 2019, the company promised it would go public in 2020 and despite the uncertainty caused by the coronavirus pandemic, this promise appears largely on track to being met.

In August, the home-rental platform confidentially filed to go public, joining an ongoing deluge of tech startups filing to go public in 2020, such as the data company Palantir Technologies Inc. and delivery platform DoorDash Inc.

It has not been an easy year for Airbnb, by any metrics. On top of its spring layoffs, the company reported a US$400 million adjusted loss in the second quarter of 2020 and its company valuation, which once topped over US$30 billion, declined to around US$18 billion.

But the company hopes to now take advantage of the tech IPO frenzy, pull in new capital to pay off its debts raised during the pandemic and reward early Airbnb employees and investors who have been waiting nearly a decade to cash out.

The company hopes to raise around US$3 billion through an IPO, which could potentially boost the platform’s valuations back to its pre-coronavirus numbers.

Uncertain future

Airbnb’s executives can point to several talking points to demonstrate why it remains an attractive investment opportunity. In 2017 and 2018 the company turned a profit on earnings before interest, taxes and expenses and guest numbers have continued to rise over the last few years. Company spending has also been streamlined, with Airbnb’s marketing budget cut by 14% in the first quarter of 2020 on a year-on-year basis.

Despite its confidence, Airbnb’s planned IPO still faces an uncertain world. International travel (which is directly connected to Airbnb’s core business) is not expected to return to 2019 levels until 2023 and the fate of the US economy remains uncertain, for the time being, with second stimulus talks remaining stuck.

Regardless of the uncertainty, Airbnb’s IPO remains one of the most anticipated in recent years. As Airbnb investor Zach Aarons told Bloomberg, “Airbnb is a very recognizable name; people know it like they know Coca Cola.” Investors will soon see just how much this name recognition is worth.

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