It’s been a long time coming, but after months of speculation Airbnb looks set to pull the trigger on an IPO on 9 December, with trading to start on 10 December. The valuation initially came in at $35bn, pricing the shares between $44 and $50 a share, as it looks to raise as much as $2.6bn. This has since been raised to $56-$60 a share lifting the valuation to over $40bn.
The timing appears curious given the huge hit to the travel sector as a result of the pandemic and subsequent lockdowns. Airbnb has seen its revenues fall sharply from the levels of 2018 and 2019, with the prospect that they could take some time to bounce back, even with all of the recent optimism over a Covid-19 vaccine.
Airbnb IPO to go ahead despite losses
In 2019 Airbnb's revenue reached $4.8bn, but this year it's unlikely to make anywhere close to that. Even before the pandemic struck, the company was running at a loss, according to the numbers in its filing. The net loss for the year was $674m, with a large part of that down to big spending in sales and marketing, as well as product development.
As a result of the pandemic, the sales and marketing budget has been cut back quite aggressively. Last year the company spent $1.6bn in that area, whereas this has been cut back to $545m so far this year, with one quarter to go. This goes some way to explaining why Airbnb was able to post a quarterly profit in its latest Q3 numbers.
Year to date Airbnb is already nursing losses of $697m on revenue of $2.52bn, however in its most recent quarter, it has managed to turn a profit of $219m, on revenue of $1.34bn. This was a significant increase in revenue from the $334m in Q2, and was only slightly smaller than the same quarter a year ago, when it turned over $1.64bn.
Better Q3 to boost Airbnb IPO?
Losses in the first half of this year were still high, coming in at $916m, but the return to profit in Q3 does suggest that the potential for a return to some form of normality. Judging by previous years’ performance, Q3 does tend to be the quarter where Airbnb performs better.
In 2018 and 2019, Airbnb revenue for Q3 was comfortably ahead of the other quarters, by a significant amount. As things stand the company is unlikely to turn a profit this year, and while it has plenty of cash to play with having raised $2bn this year from institutional investors, valuing the business at around $17bn, the terms of the loan weren’t exactly cheap, set over five years with an interest rate of around 10%.
Class A and B shares for Airbnb IPO
The company also has a multiple classification of stock, with Class B shares holding 20 votes per share, compared to one vote for every Class A share
These sorts of multiple classifications tend to concentrate the voting power in the hands of the company’s founders, and in this case in the hands of just three people, including CEO Brian Chesky. This means ordinary shareholders will have no say whatsoever in any decisions management may look to make over Airbnb's future direction.
Challenges ahead for Airbnb share price
It remains to be seen whether an, in excess of $40bn valuation is realistic in these uncertain times, however given previous IPOs, it’s quite likely that Airbnb will find enough investors to be able to build a successful IPO launch. One thing is certain in today’s climate, profitability is unlikely to be top of the list when it comes to investors looking to buy in.
More’s the pity, as the business model is likely to face a number of challenges in the years ahead, even without the pandemic. Looking ahead post-pandemic, cleaning and maintenance costs are likely to be higher, while local authorities and governments may look at making tax changes that include short-term rentals, which currently may not incur the same tax treatment as the likes of hotels and other listed accommodation, which do have to pay extra costs.
Airbnb is set to IPO on 9 December and begin trading on 10 December. What will the Airbnb share price come in at?