Airbnb’s IPO: The Motives & Implications

Recently, Airbnb has revealed that it has filed with regulators for an initial public offering (IPO). Airbnb has stated that it has filed a confidential draft registration statement with the US Securities and Exchange Commission. 

This long-awaited decision comes following the coronavirus pandemic which had appeared to postpone the initial plans of the company. 

The Implications of COVID-19 on Airbnb

The fact that Airbnb has filed confidentially has meant that investors cannot look at the company’s current financials. However, it is evident that the coronavirus pandemic has had a profound impact on Airbnb. 

With the International Energy Agency (IEA) heeding warnings to lower oil demand projections due to bleak air travel forecasts which suggest that aviation travel will only return to pre-pandemic levels in 2024, the pandemic-driven collapse in vacation travel has had major implications for Airbnb. The company was able to raise $1 billion in April this year yet had to cut costs on spending through laying off 25% of its workforce in May, pulling back on non-core areas of its business and cancelling its marketing spend.

However, as a result of the pandemic and the lifting of lockdown measures around the world, travel has begun to make a return. In particular, there has been a huge increase in the number of ‘staycations’. As a result, this has placed Airbnb in a better position which has led to its decision to file paperwork for an IPO – this means that the company could be publicly listed by the end of the year.

Next Steps

With Airbnb’s announcement, the company joins the ever-increasing list of companies which are aiming to go public within the next few months to not only avoid any volatility stemming from the US presidential election in November but to take advantage of a surging stock market. Airbnb’s listing has the potential to be one of the largest this year.

Previously, Airbnb was reportedly considering a ‘direct listing’ to raise capital. In a direct listing process, the company will be able to sell shares directly to the public without any intermediaries, thus removing investment banks to some extent. The direct listing process will also mean that existing shares are not diluted as new shares are not created.

However, perhaps due to the implications of COVID-19 on the economy, Airbnb has opted for a traditional IPO. In doing so, investment banks are involved to ‘underwrite’ and ‘stabilise’ new shares released. This means that the price will not dip too much as banks have the duty of buying up unwanted shares. Furthermore, from an IPO, Airbnb will have more flexibility as it has the option to raise more capital if need be.

Notably, Airbnb’s valuation has fallen significantly this year. The company went from a $31 billion valuation in 2017 to a mere $18 billion in April this year. Thus, investors are still waiting for Airbnb to provide details regarding the size, price and timing of the planned offering. 

The Future

Looking to the future, Airbnb’s IPO has the potential to be very successful. 

As the pandemic continues to discourage global travel, Airbnb has the opportunity to capitalise on people’s fear of catching the virus from hotels. The company looks to benefit from less resistance from hotels aiming to maintain their market share as many of the large hotel chains are currently looking for government bailouts in a bid to stay in business. This, combined with individuals looking to rent out their homes as a source of extra income alongside ‘staycation’ travellers looking for bargains, has given Airbnb much potential.

However, it must also be noted that the coronavirus pandemic may result in more adverse impacts on the company. The risk of a ‘second-wave’ of the pandemic and subsequent lockdowns may place limitations on Airbnb’s IPO. Given the still-uncertain future of travel, it is hard to determine the success of Airbnb’s proposed initial public offering.

By Bobby Zhu