Why Airbnb Is About To IPO in 2020
Airbnb was one of the most successful tech companies to come out of the GFC back in 2008. Having changed the landscape of the tourism industry, especially in accommodation, it has since grown to one of the most successful tech startups.
With the recent COVID-19 situation, however, we know how hard the industry has been hit with many airlines going bankrupt and plenty of travel startups hitting the ground.
To survive, however, Airbnb had to raise money ($1 billion) from Silver lake and Sixth Street Partners to help cushion the impact of the virus. This raise, however, came at a cost as the valuation of the business dropped from $31 billion to $26 billion due to the pandemic.
Even worse, the company has had to let go of around 1900 employees, which is almost a quarter of its global workforce.
IPO wise, we know Airbnb has been toying with the idea and had announced it was going to in November 2020. Even with this turmoil, however, there is still an opportunity for Airbnb to IPO on this date.
According to WSJ, Airbnb plans to file to IPO this month (August)
The tech giant will reportedly file its IPO paperwork to the SEC later this month, laying the grounds for the company to go public at the end of the year.
Morgan Stanley has been tapped to lead the offering, with Goldman Sachs Group Inc. also playing a key role, the people said.
This comes in a time when Airbnb has lost millions and more, especially in refunds for those who can’t travel due to the pandemic.
Airbnb has since been valued at $18 billion, a significant drop from the $31 billion it managed to secure back in 2017.
So why are they going to IPO?
This might be the question you might be first asking.
If Airbnb’s valuation dropped and the tourism industry has been impacted heavily, why are they likely to go through with an IPO?
There are a few reasons why this is the case so let’s go through them:
1. It has slowly rebounded, especially in domestic markets
According to Airbnb, in June, between “May 17 to June 6, 2020, there were more nights booked for travel to Airbnb listings in the US than during the same period in 2019”.
This signifies that even though international tourism has been impacted heavily, domestic performance has slowly been rebounding. This is applicable to even countries outside the US as well, which has allowed Airbnb to recover some of its losses.
In July, they stated that users had booked more than 1 million nights in stays globally, the most it has ever received since March 3. With many countries relaxing lockdown laws and allowing more domestic travel, there is no doubt that plenty of people are looking for ways to escape their own homes for a small break.
Bookings have already started to improve year on year, and even if the majority of the reservations have been within 200 miles of the user’s homes, it signifies an eventual return of the industry.
2. IPO now when markets are going strong
Although the market has been riding a huge wave up, many are speculating for a subsequent crash or at least a correction in the current market.
If this happens, more than likely, many tech giants retract in valuation due to the massive surge of growth in the last few months. Stocks like Amazon and Tesla have reached record highs even during the pandemic, and there seems to be no stopping them, at least for now.
If Airbnb can IPO at its target date, even if a subsequent crash occurs, it can at least IPO at a higher valuation when there is more money in the market.
After all, it is much better to go public at a higher valuation than a lower one.
3. Raise liquidity
Even with the rebound and money raised, Airbnb will still be struggling with liquidity issues.
There is no doubt that the tech giant will struggle for the next few years, and the most critical component of surviving is having enough cash in the bank.
If Airbnb were not struggling with cash, it would most likely go for a DPO (Direct Public Offering) like Spotify did, but all signs point towards a standard IPO offering.
With this IPO, however, it also means that many earlier stage employees can finally exercise their options and cash out some of their stock (although some have probably done so in the private markets).
Full steam ahead most likely for Airbnb
Even if market conditions are not the greatest to IPO in, Airbnb will most likely file for an IPO later this year or at least earlier next year.
In its current condition, it most likely cannot afford to wait for the tourism industry to return and instead, seeking more liquidity to help ride out the ride.
Personally, it seems like it would be a good time to invest in Airbnb if you believe in their long term recovery.
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