It looks like a bad joke. Now, at a time when the future of the travel industry couldn’t be more uncertain, home rental platform Airbnb hits the market.
Airbnb shares opened Thursday at $146 (€120.3) on the Nasdaq, well above the initial public offering (IPO) price of $68 apiece. The stock hit a high of $165, rising 142.6% after its debut and making the San Francisco, Calif.-based group worth more than $100 billion.
The listing comes 10 months after the coronavirus pandemic upended travel and appeared to have even Airbnb chief executive Brian Chesky stunned. “I don’t know what else to say,” Chesky said when told about the potential opening price in a Bloomberg Television interview. “I’m very humbled by it.”
Frankly, Airbnb could use the money. A look at its nine-month balance sheet shows how badly the company has suffered from the fallout of the coronavirus pandemic. Bookings have fallen 39% over the past three quarters, cutting revenue by a third to $2.5 billion. Losses from the same quarters last year doubled to nearly $700 million.
To soften the blow, Chesky pulled out all the stops. As of this spring, he cut marketing spending by a billion dollars, cut executive salaries in half and even gave up his entire salary. Still, that wasn’t enough. A good quarter of the workforce had to leave, ie 1,900 employees in total. Even a $2 billion capital injection from investors like Silver Lake didn’t help. The company ended up with a big deficit for the whole year.
The Airbnb advantage
Nevertheless, Airbnb went public on Thursday, buoyed by a recent glimmer of hope. In the third quarter, the company surprisingly posted a net profit of $219 million. “Our business has rebounded faster than expected.”
Indeed, Airbnb is resisting the crisis much better than the traditional hotel industry. “Airbnb has benefited from an increase in demand during the pandemic from people looking to get away from the city,” strategy consultant Peter Cohan, who teaches at Babson College in Massachusetts, told DW.
While apartment sales in global metropolises have fallen dramatically, the market for rural second homes is booming. This is where Airbnb has the edge over traditional hotel chains.
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Added to this are its relatively low operating costs. To run its own business, Airbnb doesn’t have to pay anything other than the salaries of its employees. The direct costs of vacant houses and apartments are borne exclusively by the owners. Unlike other hotel and travel providers, Airbnb doesn’t have to pay for vacant homes, half-full planes, or docked cruise ships.
The importance of sharing
It’s the core concept of the sharing economy that pays Airbnb more than ever. “Access is more important than possessions.” It’s the mantra that has driven companies like ride-hailing service Uber and co-working space provider WeWork to success.
The idea was born from the financial difficulties of the founders. “I never thought about being an entrepreneur,” Chesky admitted in an interview with Linkedin founder Reid Hoffman a few years ago. To pay the high rent for his apartment in San Francisco, he had a simple idea.
Along with her roommate, Airbnb co-founder Joe Gebbia, Chesky installed three air mattresses in her living room. He then rented the air mattresses cheaply to people attending a design conference near their apartment. Chesky added free breakfast, giving rise to the name Airbnb, short for “Airbed and Breakfast”.
Twelve years later, the company has become the largest private hosting platform in the world. More than four million providers in 220 countries now regularly rent out their houses and apartments. Since 2017, tours and activities with locals can also be booked on the platform. For its services, Airbnb charges a commission on the sale, an impressive 15%.
Regulators are a problem
The company has generated more than $110 billion since its inception. But the business model is regularly criticized. For years, the company has fought with cities over strict regulations for private apartment rentals on Airbnb. Some have accused the platform of causing housing shortages and rising rents in metropolises such as Barcelona, Paris and Berlin.
More than two-thirds of the most popular city destinations found on Airbnb now limit rentals through the platform. In the stock exchange prospectus, the company warns of the potential consequences. “The number and importance of these claims, disputes and proceedings have increased and we expect them to continue to increase,” he says. In big cities like New York, regulations and lawsuits could lead to long-term lost revenue.
Still, company experts like Cohen are confident the IPO will be a success. “I don’t think these regulatory issues will discourage demand from Airbnb,” says Cohan, himself a venture capitalist who invests in startups. Of course, the investment is risky, especially since the company still has to prove its ability to adapt over the long term. But Airbnb is now so well known, even among private investors, that backers are likely to turn a blind eye to the expected increase in sales.
This article was adapted from German.
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