Home-sharing giant Airbnb Inc.’s stock more than doubled in its market debut, reflecting strong demand for the shares despite a challenging year when the travel industry buckled under the coronavirus pandemic.
The San Francisco-based company was founded in 2008 after Joe Gebbia got his friends Brian Chesky and Nathan Blecharczyk excited about renting an air mattress in his downtown apartment. It has grown into a global behemoth with more than 4 million hosts and over 7.4 million listings of home rentals along with “experiences” like guided wine tours, mountaintop yoga and pottery classes.
Here is what you need to know:
When did Airbnb go public and how did it fare?
Airbnb’s shares began trading on Thursday at $146 on the Nasdaq Stock Market, versus its initial-public-offering price of $68 a share. The company boosted its price range multiple times in the days leading up to the trading debut, as investors clamor for the stock in the midst of a historic boom in IPOs.
Airbnb had been considering a direct listing, in which shares can start trading publicly but no money is raised. Instead, it has opted for a traditional IPO in which it sold new shares to raise capital.
What is Airbnb’s market cap?
The opening trade valued Airbnb at $101.6 billion, compared with its IPO valuation of roughly $47 billion, based on a fully diluted share count and proceeds from the offering. Based on the stock’s debut, the company is worth more than Marriott International Inc., Hilton Worldwide Holdings Inc. and Hyatt Hotels Corp. combined.
By comparison, Airbnb’s valuation fell to $18 billion when it raced to secure a loan as bookings fell during the pandemic earlier this year. It was valued at $31 billion in a 2017 investment round.
Ride-hailing giant Uber Technologies Inc. closed its first day of trading last year at a valuation of $76 billion, lower than its priced offering. Its market capitalization is more than $90 billion today.
What are the benefits of going public?
The money raised can be used for various things, including investments, acquisitions and paying off the money Airbnb borrowed to navigate the health crisis earlier this year. It is also a way for the company’s founders and early investors—including family members, employees and venture-capital firms—to sell some or all of their stakes and make money from their initial bets on the startup. The three co-founders are selling about 1.9 million shares in the offering, bringing the total shares in the IPO to at least 51.9 million. The trio will still command nearly 43% of Airbnb’s voting power after the offering.
Sequoia Capital and Peter Thiel’s Founder’s Fund are among the biggest shareholders in Airbnb.
Airbnb’s leadership—including Mr. Chesky, the company’s chief executive—toyed with the idea of going public for several years. Some early investors and employees, a handful of whom are set to lose their stock options next year, were applying pressure on the CEO to take the company public so they could cash out.
The company has said it would allow its employees to sell up to 15% of their shares when it lists, as opposed to having a monthslong lock up period.
Airbnb had planned to make its widely anticipated debut earlier this year, but then the pandemic hit, hammering bookings in Asia, Europe and the U.S.
Airbnb’s debut comes at the end of a year that has already broken records for IPO dollars raised, entering a market where investors largely have been bidding up shares of newly public companies.
How can investors buy shares of the newly public company?
Airbnb’s underwriting team, led by Morgan Stanley and Goldman Sachs Group Inc., gave an initial allocation of shares to a mix of institutional investors, including mutual funds and hedge funds, and some individual investors, at a set price on the day before the stock started trading on the Nasdaq exchange. Now that Airbnb’s shares are trading, individual and institutional investors can buy the shares through a brokerage firm.
How has Airbnb’s business fared during the pandemic?
The pandemic initially crushed the company’s business. Revenue in the three months that ended June 30 dropped 72% from the year-earlier period. The loss over the same period nearly doubled.
But business picked up in the three months ending Sept. 30, leading revenue to fall just 18% from the year-earlier period. An unforeseen pickup in local stays, combined with deep cost cuts, led the company to post a profit of $219 million over the period. The June-September quarter is typically strong for the platform because of seasonal factors including summer vacations, and Airbnb has turned a profit in that period since 2018. The fact that it squeezed out a third-quarter profit this year is notable, but its future prospects will depend on whether it can turn a profit in other quarters and, eventually, annually.
How did Airbnb come back from the brink?
Mr. Chesky pivoted quickly to raising capital to keep the business afloat, laid off a quarter of staff and shed noncore businesses.
The CEO had drawn criticism for spending big before the pandemic. But he cut 54% of marketing costs through the nine months ended Sept. 30, compared with the year-earlier period. Total expenses over the period declined 22%.
Mr. Chesky separately ordered a redesign of Airbnb’s app and website so the company could focus on local stays during the pandemic—a strategy that paid off as people ventured into neighboring communities so they didn’t have to fly. Many users viewed staying in stand-alone properties as safer than using shared facilities in hotels. Mr. Chesky spoke to The Wall Street Journal in October about steering the company out of its worst crisis.
Why are some prospective investors encouraged by its financials even though it has never posted a full-year profit?
Airbnb’s accumulated losses since its 2008 founding totaled $2.1 billion through Sept. 30.
It reported a loss of $697 million through the first nine months of this year, more than twice as much as in the year-earlier period, largely because of shrinking revenue earlier in the health crisis. Its $674 million loss last year was greater than its losses in the previous four years combined, as the company spent big on marketing and other administrative costs.
That said, most Silicon Valley startups are bleeding red ink when they go public. Airbnb’s combined losses are still a fraction of the $7.9 billion that Uber reported through 2018, the year before it went public. Uber was founded seven months after Airbnb.
What are some other risks of investing in Airbnb?
The Covid-19 pandemic continues to be Airbnb’s biggest near-term challenge. Investors must also contend with risk factors such as cities weighing zoning restrictions on short-term rentals and Airbnb’s difficulties policing crime and promoting safety on its platform—a matter that is expected to draw more scrutiny as it becomes a public company. Airbnb is one of the few Silicon Valley startups with a presence in China, though the U.S. and Europe continue to be its biggest markets.
The company said a prolonged deterioration in U.S.-China relations could hurt its business. It also said it is subject to various requirements and requests from government agencies to share information about users of its platform in China. “We need to ensure that our business practices in China are compliant with local laws and regulations, which may be interpreted and enforced in ways that are different from our interpretation,” Airbnb has said.
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