Airbnb targeting £31.5bn valuation through IPO

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Airbnb

Airbnb shares will start trading on the US stock market from 2.30pm on 10 December using the symbol ABNB.

The international home-sharing digital platform has raised its share price before its initial public offering (IPO), meaning the company could reach a valuation of more than £31.5bn ($42bn).

In a government filing in the US yesterday, Airbnb is aiming for a share price of up to £45 ($60) each, up from £33 in September.

It is an impressive turnaround for the San Fransisco-based company, who initially struggled in the immediate aftermath of the coronavirus pandemic and subsequent lockdown.

In May, the firm cut about 1,900 jobs across the globe, however, as lockdown restrictions gradually eased, more travellers opted to book homes through Airbnb.

The company’s stock market debut will be one of the largest US IPOs of 2020.

Airbnb has more than four million hosts on its platform in over 220 countries and regions across the world – and has revolutionised the leisure and tourism sector.

Industry reaction

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

Airbnb is a great example of how a company worth billions can grow from a simple idea. It all started with Brian Chesky and Joe Gebbia inflating airbeds for guests in a spare room at their San Francisco home, after spotting there was a shortage of hotel rooms in the city. Fast forward thirteen years and Airbnb is now checking in at the US Stock market, boasting four million hosts on its platform. Last year more than 2 million people stayed at an Airbnb hosted property every night, on average. The accommodation on the site has certainly gone up in the world, with castles, cranes and even tree houses offered as lodgings to guests.

The key to growth is Airbnb doesn’t have to own the property. It connects renters and property owners across the globe through its online platform. Hosts pay Airbnb a 3% commission, while guests pay a 6-12% service fee. This business model is proving successful – revenue topped $2.5 billion in the first three quarters in 2010. But then the pandemic hit.

On the face of it, 2020 is a far from ideal time to float given the travel industry has been at rock bottom, battered by the effects of Covid-19. It’s not just cruise companies, airlines and traditional hotel chains that have been badly hit, the pandemic had a serious effect on Airbnb’s finances after cancellation rates soared and bookings dropped like a stone. Instead of listing as planned back in March, in April it was forced to raise $2 billion through debt and equity securities to see it through the crisis.

Yet in August, to the surprise of many the company still filed for an IPO. The fact that early Airbnb investors and employees have stock options which will expire early next year may have something to do with it, so will the onerous terms of the funding deal with its private equity partners. But it is fair to say that the company has rebounded from the crisis than many of its competitors.

Airbnb is a now a household name globally and its model can pivot quickly to satisfy the change in booking behaviour brought about by the pandemic. There has been a rise in staycations around the world, with smaller groups holidaying together switching from popular tourist spots to more isolated rural retreats. That trend could also help reduce the number of complaints from neighbours about rowdy revellers which has plagued the company in recent years, along with accusations that the platform limits the amount of housing available for locals. Those concerns have led to restrictions on how the company operates in some big cities around the world.

Airbnb still has plenty of challenges to grapple with, but its flexible model should give it room to manoeuvre in the hard hit travel sector compared to some of its rivals.

As with everything, investors must look past the hype, fanfare and the history. It’s important to understand a company before investing. Know the company-specific risks and make sure you’re happy with the long-term prospects. And never put all your eggs in one basket.

Professor John Colley, Associate Dean at Warwick Business School and an expert on IPOs

Airbnb’s strong debut comes as little surprise in view of the enormous valuations accorded to anything ‘tech’. After all, the company is nearer to profit than many recent and current IPOs.

However, those prices are a consequence of growth rates, rather than the likelihood of consistently making significant profits. Just look at Uber and Lyft.

Airbnb has been spending significantly to increase growth rates ahead of the IPO and attempting to reduce criticism in relation to safety, fraud and product descriptions.

However, the risks are significant. Airbnb still makes substantial losses after 12 years and was effectively rescued from COVID in April 2020 with $2Bn from private equity. It also faces competition from Booking.com, Expedia, Google and a host of others in an increasingly congested marketplace.

Future growth is likely to be narrow margin, so shareholders may well be in for a turbulent ride.

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