By Rebecca Shields
Your commercial awareness dose.
Today, one of the most anticipated public offerings is set to occur. Airbnb will make their initial public offering (IPO) on the Nasdaq stock market in New York. With shares predicted to be priced between $56 and $60 each (£42 and £45 each), Airbnb’s offering is valued to reach around $42bn (£31.5bn), more than double the company’s previous $18bn (£13bn) value from earlier this year. Airbnb is hoping to raise over $2.75 billion from the offering. This economic prospect may seem unrealistic to some considering the travel industry, the company works within, was severely affected by the Coronavirus pandemic but Airbnb seem to be growing increasingly optimistic about the result.
Founded in 2008, Airbnb currently has over 4 million hosts and 7.4 million listings. They have welcomed more than 825 million guests and shaken up the travel industry. However, despite those impressive figures, the company has struggled throughout the global pandemic. They saw a decrease in bookings by 72% in April. By May they had cut around 1,900 jobs and distributed more than $1 billion in cancellation fees.
However, in June, they had already started to recover. Airbnb’s properties being people’s homes meant they are more likely to have listings that include gardens, larger spaces, no public elevators and allow for social distancing to be more easily applied than at a hotel. All of which are now necessities for many people travelling. Although international travel had decreased, domestic travel was on the rise. When their third quarter came around, they were only down in revenue by 18%, faring stronger than their competitors such as Expedia Group Inc. who were down 60%.
You may be asking yourself why there is trepidation about Airbnb’s IPO. If the numbers above are anything to go by it would seem a sensible option to purchase Airbnb shares. The problem is whilst the numbers this year look good, a lot of Airbnb’s IPO centers around an estimation that they will fully recover from this pandemic. They have certainly proven adaptability and durability, but their industry is still floundering. Restricted travel is dominant. Long-distance travel is out of the question for many. A global recession is on the horizon, and unemployment levels have skyrocketed. For many, holidays and travel will not be essential. As businesses move to incorporating remote working permanently into their structures, travel for work will see a decline.
The unstable travel industry is not the only weak point in Airbnb’s plan. There have been growing concerns amongst Airbnb’s hosts about the increasing number of corporate-run properties being let through Airbnb. The concern amongst the hosts is not without cause. In Airbnb’s public listing document, they state “We have seen an increase in the number of, and revenue from, professional hosts on our platforms.” Currently, 10% of hosts are professional companies. If this percentage were to increase substantially, it would undermine Airbnb’s unique selling point.
Perhaps in a move to appease some of their hosts, they have decided to offer a share program to their existing hosts at a pre-IPO price. A host endowment fund has been created with 9.2 million shares already available. If the fund reaches a value of $1 billion, then Airbnb has pledged to use the excess to fund projects benefitting the hosts.
As usual, economists are realistic about their predictions for the value of Airbnb’s IPO. The prediction is that if Airbnb maintains its growth at pre-pandemic levels, then they should be valued at $28 billion. If they were to focus on cost efficiency, they could reach $58.7 billion. If Airbnb secures a higher value from their IPO it will be a clear indication that there is hope for the travel industry, and it could appear faster than previously predicted.
Donate & Support