"We will not go public this year. We are working on the preparation and will make the decision according to our own schedule". This was announced by AirBnB CEO Brian Chesky in 2018, and two years later the preparations seem to be complete and the IPO is imminent.
Before the outbreak of the pandemic in America, the valuation was $38 billion. Some experts had even hinted that this latest internal valuation could be a deliberate underestimation to satisfy investors with the returns they will see in the coming years. Airbnb's shares were set at around $120 in the recent acquisition of HotelTonight and through other reported private bids!
Since then, however, the environment has changed dramatically. Travel restrictions have hit the company, like the rest of the industry, hard, resulting in a loss of nearly $700 million by September this year alone. In April, private equity firms such as Silver Lake and Sixth Street pledged around $2 billion to the ailing company to help it survive the crisis. Nevertheless, a quarter of the employees had to be laid off, the marketing budget was cut by 54% and the company valuation was reduced to $18 billion.
Since the summer, however, AirBnB has recovered somewhat. The number of bookings increased again. On the one hand, the trend towards more travel in the home country was recognized and business activities were adjusted accordingly. On the other hand, Chesky noted that the pandemic shows the possibility of being able to live anywhere, as "the boundaries between travel and life are becoming blurred". Not only were home offices increasingly approved by companies, but remote working was also allowed. As a result, the number of longer stays increased and the focus shifted from subletting private apartments in large cities to vacation homes. While before the pandemic, rentals in the same country accounted for about half of the business, it is currently almost 80%. This trend will probably continue in the short term, but according to Chesky, no clear forecasts can be made for the long term. The recovery process will probably be complicated and protracted despite the rays of hope for the entire travel industry.
Brian Chesky founded the company in 2008 with his two former roommates Joe Gebbia and Nathan Blecharczyk. After initially being unable to find investors to finance the company, they made a start-up investment of $600,000 in 2009, which greatly accelerated growth. The third VC round in 2011 already yielded $112 million from investors such as Crunchfund and General Catalyst. After attracting billions more in the following years, AirBnB has probably raised a total of $5.4 billion in venture capital to date, over 16 financing rounds.
Despite the impact of Corona, the company is developing as a leading figure in the sharing economy, especially after the demise of Uber and Lyft earlier this year. To this end, a series of ambitious takeovers and expansions will ensure the long-term growth of AirBnB.
But the long wait is over!
AirBnB's IPO took place yesterday, with trading starting today - Thursday 10th December. The company will join the exclusive guest list of tech companies that managed to get an IPO done in this particular year. On the list are Asana, Snowflake, Palantir, Unity Software and as well DoorDash, which began trading on Wednesday with a valuation at closing of $60.2bn.
Initially research analysts (whose job it is to give pricing estimate that guide the price discovery process of an IPO), estimated that the listing of AirBnB would bring in around $3 billion, thus valuing the company at $30 billion.
At times of writing, the company sold shares in its IPO at $68, pricing well above the initially expected $56-$60 range. But what about the valution?
So Airbnb sold on Wednesday 50 million shares, raising $3.4bn in proceeds and thus valuing it at $47bn on a fully diluted basis. This is remarkable considering how badly the company has been hit by the COVID-19 outbreak and still is a 52% premium to the $31m valuation it was given during it's Series F back in March 2017.
Furthermore, Airbnb had been considering a direct listing, for which existing shareholders have the opportunity to offer their shares and no new shares need to be issued. This form would be more cost-effective for AirBnB (as they do not need an underwriter, i.e. an investment bank that gets paid to agree to find investors at their own risk) and the existing shares of the shareholders will not be diluted. In this case no money is raised and existing investors can sell their shares and get money in return. Instead, the company opted for a traditional IPO where it will sell new shares (c. 7%) to raise capital.
Why do they go public?
Going public is usually meant to help companies raise money to pursue investments, acquisitions and further extend operations. But often it's actually used to pay off borrowed money - for Airbnb in particular given they had to lend over $2bn this year to navigate the crisis - and to give cash back to founders, employees and early investors. The three co-founders are selling about 1.9m shares in the offering. The trio should command after the listing still around 43% of Airbnb's voting power. Among early investors were Peter Thiel's Founder's Fund and Sequoia Capital.
Now should you invest in the stock?
The financial ratios are solid, the valuation is higher than that of few other tech-based companies, and yet three major questions arise in the context of the IPO. The first is whether the business model is still capable of dominating the rental housing market. So far, no serious attacks on Airbnb's dominance have been made, but it remains to be seen whether VRBO and similar companies can be serious competitors. Secondly, it remains to be seen whether the expansion in terms of booking experiences will be successful. Finally, there is the question of legal and regulatory standards. Since its foundation, the company has been struggling with legal hurdles, and due to the increasing professionalization of the business model, these hurdles continue to rise. In some places, short-term rentals have already been prohibited. If important markets follow, Airbnb will suffer a considerable setback.
These uncertainties need to be clarified and will be decisive for the future success of Airbnb. Investors are probably looking less at whether the IPO itself will be a success and more at whether the share price can stabilize quickly and then move in a positive direction.
Where can I buy Airbnb shares?
Airbnb’s underwriting team, led by Morgan Stanley and Goldman, will give an initial allocation of shares to a mix of institutional investors, such as hedge funds and mutual funds, and some individual investors, at a set price on the day before the stock starts trading on the NASDAQ. Once the company's shares start trading, individual and institutional investors can buy the shares through a brokerage firm.
If your broker is in the US, this will be easy. But what for German brokers? For now we do not know when the Airbnb stock will be available in Germany. Why? Brokers - such as Trade Republic and Comdirect - need to contact a US broker to buy the stock via so-called depositary receipts.
In short, depositary receipts allow investors to invest in companies in foreign countries while trading in a local stock exchange in the investor’s home country. It is advantageous to investors since shares are not allowed to leave the home country that they trade in.
Now, you can already trade the stock, but only via options. So better let the fingers from it!
So keep calm and let's wait for the Airbnb stock to be available.