Is Airbnb ready for an IPO?

• How will Airbnb’s IPO differ?
• Operational and competition analysis
• What is delaying the IPO?

Airbnb is valued at $31 billion and has created much media frenzy about its debut on the stock exchange since early 2018. Airbnb, along with other tech unicorns like Uber and Slack is set to go public soon, with Lyft already hitting the market in March 2019. While Uber is prepping up to trade publicly by May, Airbnb’s IPO may get delayed until the next year as the company prepares to launch its IPO by 2020. Let us try to analyse the operation and competition for an air mattress rental idea that has evolved into a home sharing commercial giant.

Airbnb reported revenue of $2.6 billion in 2017, with a profit (EBITDA) of $93 million, although 2018 figures are still to be revealed, the company was expected to earn a revenue of $3.8 billion. Its revenue has grown at a whopping CAGR of 150% from 2009 to 2018.

What makes Airbnb’s debut different from other IPO’s is that it has had two consecutive years of positive EBITDA. Companies like Uber and Lyft are not earning any profits yet and seems far-fetched from achieving this goal as they still stick to the model of volumes.

Additionally, like Spotify, Airbnb could actually opt for direct listing rather than being dependent on bankers/underwriters to sell new stock. There are two theories to support this possibility; firstly, Airbnb does not have an immediate need to raise new amounts of money after it raised over $1 billion in a financing round in 2017.  Secondly, its brand is well-established globally, thus, it would still be covered by analysts irrespective of the traditional approach of a roadshow for an IPO or not.

Moreover, at its current valuation, Airbnb is second only to Marriott in the hospitality business, with Hilton lagging behind the two as shown in the above graph. If one compares the operation, Marriott operates 7000 properties with 1.3 million rooms in 130 countries, while Airbnb has over 6 million listings in 191 plus countries. Airbnb’s listings now surpass the combined strength of rooms held by the top 5 hotel chains. Airbnb has become such a huge phenomenon in a span of 12 years that it has beaten Hilton in the US revenues in 2018 and is now a threat to the Marriott.

However, Marriott claims that Airbnb is not a competitor because of its loyal high-end customers giving it an ADR (average daily rate) of up to $160 in 2018. Although, Airbnb with its cheaper rooms and vast listings has forced Marriott and the likes to explore the home sharing/vacation rental industry. In 2018, Marriott began a pilot program in collaboration with Hostmaker in London, Paris, Lisbon and Rome, wherein, it listed 340 premium residences. While hotels are exploring space in room sharing, Airbnb began listing of hotels in its portfolio of properties, thus, posing as a more potent threat to Marriott.

Airbnb has also been on an acquisition spree, it acquired HotelTonight, Gaest, Lucey Homes and invested in OYO in the last four months. This implies that Airbnb has plans for continuous expansion and there is no stopping, particularly before its IPO. Airbnb’s acquisition of HotelTonight, a last-minute hotel booking platform, puts it a step ahead in the competition within the hotel industry by increasing its listing of hotels.

When one narrows down on the hospitality industry and focuses on Airbnb’s direct competition in the vacation rental market, the company that crops up the most in one’s mind is HomeAway. It is a subsidiary of Expedia with 1.8 million listings in 190 countries and revenue of $1.2 billion in 2018. Further, lesser listings at HomeAway are accounted due to the offering of private spaces only, which are not shared by owners or other guests. Airbnb, on the other hand, offers both private accommodation and shared ones. HomeAway’s focus is limited to making private rental homes available to tourists, while Airbnb’s platform covers rental homes, hotels, local experiences and activities that increase its scope of revenue recognition.

Airbnb is not only a leader in the vacation rental market but is also a tough competitor for the top hotel chains without actually owning a hotel. Below is the brand ranking of Airbnb vis-a-vis Marriot and Hilton released by Brand Finance in 2019 (Global 500 Brands). While Hilton held a better rank until 2018, it dropped down to 102 positions in the last two years and reached a rank of 273 in 2019. Airbnb, on the other hand, has gained 237 spots to achieve a rank of 230 and now outperforms Hilton and Marriott in terms of brand preference. HomeAway or Expedia do not rank in the global top 500 brands, while Airbnb is swiftly reaching towards the top of the ladder.

The buzz around its IPO is only rational and is here to stay as seen from all the above statistics. The big question that arises now is, what is delaying the much-awaited IPO? Is it Airbnb’s constant battle with the regulators accusing Airbnb of the increase in the prices of property, rents and homelessness?

Airbnb has been battling against regulators in its home town of San Francisco and New York, Paris, Berlin and Miami, wherein these cities are demanding that Airbnb cannot list properties that are not legally registered within the city or it has to face the legal brunt. This means that there has to be more verification and introspection from Airbnb in terms of properties it lists on its website, which increases its operating cost. The lawsuit in San Francisco led Airbnb to open a registration portal so that hosts can register properties that they want to rent. This ultimately resulted in lesser number of San Francisco home listings on its website.

Airbnb does not want San Francisco’s scenario to be repeated in other parts of the world and is thus taking time to understand the dynamics of its business in neighbourhood homes and economy. In Brian Chesky’s (CEO, Airbnb) words, ‘executives at technology platforms including companies like Facebook and Twitter need to better appreciate that when they have millions or billions of users, every little decision has a massive impact on the world. This is a huge amount of responsibility and I think we are all coming to terms with this responsibility.’ Thus, it seems, before it is put to public scrutiny, Airbnb wants to come to terms with the regulators in big cities that is vital for its survival. Let us hope this can be done without further ado and the much-awaited IPO finally hits the market in 2020.