Airbnb is the Godot of IPOs. After teasing us with the idea of a listing for years, the San Francisco-based unicorn finally took the plunge and filed to go public on Monday.
The company, who’ll sign Nasdaq’s guest book under the ticker ABNB, is hurtling towards one of the largest IPOs of 2020. The billion-dollar listing tells the tale of the comeback kid: a buzzy 2008 startup forced to face the perils of not one, but two global recessions and a pandemic, emerging from all three with the buoyancy of confidence.
Airbnb's listing documents tell a different story: one of a company shouldering the weight of risks beyond its control. The company's S-1 filing reveals it lost close to $700 million in the first nine months of this year – twice the amount it lost during the same period in 2019.
A large number? Yes. Surprising? No. The rental industry, along with the rest of the hospitality sector, has nosedived its way through 2020. The cascade of cancellations brought on by the pandemic-induced travel slump dragged Airbnb’s bookings in Europe and Beijing down by, at one point, 80 per cent and 96 per cent respectively.
In response, Airbnb toned up. In May, it cut 25 per cent of its workforce, froze its marketing budget and slashed executives’ salaries in half. All three co-founders ceded their salaries to help stem the bleeding.
And it worked. The comeback kid rebounded with a better-than-expected Q3. But nine months of financial haemorrhaging can’t be patched up by one quarter’s results. As Airbnb said in it’s filing documents: “the impact of actions to mitigate the Covid-19 pandemic… will continue to materially adversely impact our business.”
Although the pandemic hurled Airbnb’s finances into an abyss, it turns out the company has been sauntering cliff-side for a while. Airbnb’s listing documents reveal its revenue growth has been in a steady decline for the last three years, with expectations growth will continue to slow in the future.
The dimly lit path to stable, quarter-on-quarter profitability is fraught with more difficulties yet. Airbnb is in debt to the tune of $2 billion. This level of indebtedness makes the company more vulnerable to sagging economic conditions, with the IPO filing suggesting Airbnb isn’t entirely sure it will be able to sustain the cash flow required to meet interest and principal payments in the future.
Other risks are also peppered throughout Airbnb’s S-1 filing, perhaps the most notable being alleged anti-competitive antics by Google. The rental giant accuses Google of playing favorites, prioritising its own travel products – Google Travel and Google Vacation Rentals – over Airbnb’s. This preferential treatment fogs up Airbnb’s search engine visibility, leading to less website traffic. Airbnb warns it might have to ramp up its marketing budget to compensate for the loss.
Light at the end of the tunnel
At first glance, the smattering of risk factors in Airbnb’s IPO documents piece together a bleak picture. But the plucky company that once revolutionised short-term renting still has some juice left in the tank.
For one, it’s the best-performing company in 2020’s worst-performing sector. In Q3, Marriot’s revenue fell 57 per cent, Hilton’s slumped 61 per cent, and Expedia's revenue sank 58 per cent. Compared to this, Airbnb’s skating through the pandemic on a golden scooter, clutching dollar bills and a sign that says “survived Covid.”
Airbnb also has the luxury of agility. Throughout the pandemic, the company has been perched on its toes, ready to dart one way and then the other as coronavirus cases rise and fall in quick succession. The company’s saving grace during the pandemic was its quick pivot to domestic rentals. “People wanted to get out of their homes and yearned to travel, but they did not want to go far,” the listing document says, “Domestic travel quickly rebounded on Airbnb.”
So, equipped with a resilient business plan and a leadership that knows how to shimmy around coronavirus, Airbnb has a narrative that’s more optimistic than other fallen soldiers of the travel industry.
The golden bullet in Airbnb’s monster IPO, though, is its perfect timing. Pfizer and Moderna’s race to roll out a Covid vaccine has brought with it a renewed optimism about the future of global travel. This is good news for Airbnb’s traditional, international home-sharing business plan.
The alternative isn’t so bad, either. In the worst-case scenario, neither Pfizer nor Moderna release a vaccine, local lockdowns continue to spring up, people carry on working remotely and – most importantly – there’s an increased demand in local getaways to pave over the cracks in international travel. This is good news for Airbnb’s new domestic home-sharing business plan.
So it’s no wonder, despite the grab bag of risks it’s toting around, Airbnb’s blockbuster listing continues to drum up enthusiasm and woo investors: it’s a no downside bet. This year’s frothy IPO season might just be seeing it’s most exciting debutante yet.
Annia Mirza is the founder and editor of the legal newsletter 'Legit'