Airbnb’s Revival and IPO

Background

The home and apartment rental company Airbnb is planning to go public later this year in one of the most anticipated IPOs of the year. However, just this past May, the company was close to collapse after demand for travel was decimated due to the pandemic. However, the company saw an opportunity when people began looking for rentals in neighboring towns and cities to limit travel. In response, CEO Brian Chesky quickly pivoted the strategy to focus on local rentals, which included updating the website and algorithms. Additionally, Chesky announced a plan to layoff of 1,900 employees in March. These moves placed Airbnb on the path towards having a profitable third quarter.

Upcoming IPO

Shares of Airbnb are expected to begin trading in around November or December. The valuation of $30 billion has doubled in the past 6 months since Airbnb’s last round of financing. It is already expected to be the hottest IPO of the year, led by Morgan Stanley and Goldman Sachs. The IPO market is hot currently, with Palantir, Warner Music Group, and Snowflake all going public in the past year. Shares of Snowflake more than doubled on the first day of trading earlier this year, the first time this has happened with a company of the size. So far, listings have jumped an average of 40% on the first day of trading.

Concerns

While IPOs so far this year have soared, there are numerous concerns surrounding Airbnb’s IPO. First, there is the challenge of ensuring that rentals are safe for customers by ensuring new cleaning protocols and gaps between bookings. A second concern revolves around the profitability of the company. Airbnb lost millions in 2019 and, with investors placing a greater emphasis on profitability rather than growth, the company will have to show that it can make a profit even in the current environment. Third, the company has struggled at times to manage fraudulent listings or unauthorized parties, leading to complaints from guests and hosts. Navigating these challenges may prove tricky, especially in the current environment.

Uncertainty

Many of the details of Airbnb’s IPO, such as the exact date and price, are still uncertain, due to the timing of the SEC’s review process. The exact form of the listing is also uncertain, as it could be a traditional IPO, a direct listing, or merging with a black-check company. In a traditional IPO, there is a roadshow to drum up interest in the company after which bankers set the price of the stock. An alternative to this method is the direct listing, in which there is no roadshow and the opening price is set by the exchange. “Blank check” companies are known as special purpose acquisition companies (SPAC). This s when a company raises money for an IPO, then finds an acquisition target. Recent fraud with SPAC IPOs have been cause for concern, however, most notably with the case of Nikola. However the Airbnb IPO looks this year, it will undoubtedly be a milestone moment in the transformation of the travel and hospitality industry.