- Airbnb has resumed preparations for an initial public offering, company CEO Brian Chesky told employees Wednesday.
- After being hit hard by the coronavirus crisis, Airbnb’s business has bounced back, Chesky and the company have said.
- There are good reasons for the company to go through with its offering — the stock market has rebounded, recent tech-related IPOs have done well, and Airbnb employees run the risk that some of their options will expire and become worthless if the company doesn’t debut this year.
- But there are reasons why the company might want to push back the IPO, such as the fact that travel-related stocks haven’t recovered from the crisis, it’s unclear how investors will receive a company that got hit hard by the pandemic, and there’s a risk that the uptick in cases in the US and other countries will harm Airbnb’s businesses.
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Airbnb CEO Brian Chesky wants everyone to know that his company could still go public this year.
Whether it should is another matter entirely.
Chesky told company employees Wednesday that Airbnb’s business has rebounded from the severe hit it took from the coronavirus crisis, according to a report in the New York Times. As a result, its much-anticipated initial public offering is back on track, he said.
“We are resuming this work” of preparing for an IPO, Chesky said in an email to employees that was shared with Business Insider by a company representative. “We’re not committing to going public this year, but we’re not ruling it out. When the market is ready, we will be ready. We were down, but we’re not out.”
It’s worth noting that Chesky did not actually provide a concrete timeframe for its IPO. Will it happen in 2020? or 2021? Airbnb isn’t “ruling out” an IPO this year, but it’s taking a pretty low-risk approach to declaring a “revival” in its home-sharing business.
In addition to sharing the email with Business Insider, Airbnb allowed a New York Times reporter to attend the employee event, so it seems pretty clear Chesky wanted the news of Airbnb’s comeback to be broadcast widely.
Airbnb has rebounded from the crisis
There’s little doubt that Airbnb is in much better shape than it was even just a few months ago. In response to the spreading COVID-19 pandemic, governments around the world restricted the movement of their citizens, essentially quashing the travel business worldwide.
Airbnb, like other travel companies, was hit hard. It cancelled numerous reservations, saw new bookings plunge, and Chesky warned that its revenue this year would be cut by more than half. To shore up its business, the online travel company cut 1,900 jobs, laid off hundred contract workers, and slashed its marketing budget. With the company in real danger of burning through its cash in a prolonged downturn, it raised $2 billion by selling debt at high interest rates.
But things started looking up for the company in May as US states and countries around the world began to lift their restrictions on travel and commercial activity. By mid-May, the number of global bookings made each week for short-term rentals — Airbnb’s core business — had bounced back almost to the levels they were at before the pandemic.
Data the company released more recently indicates its business has only improved since then. On July 8, customers booked 1 million nights worth of reservations through Airbnb, the first time the company had seen that volume of bookings since March 3, the company said this week. And from June 1 to June 20, the number of US bookings on Airbnb for reservations that would accommodate at least one child was up 43% from the same period a year earlier, it said earlier this month.
With business picking up, with the additional funds in its coffers, and with its decreased expenses, Airbnb is almost certainly out of its near-term cash crisis.
Airbnb has good reasons to go public soon
And the fact is there are good reasons for it to go public sooner, rather than later. Like Airbnb’s business, the stock market has rebounded from the beating it took this spring from the coronavirus crisis. The Nasdaq is well above its pre-pandemic peak and is trading near its all-time high and the S&P 500 is near its pre-pandemic highs.
Meanwhile, recent tech-related IPOs have been a hit with investors. NCino, a financial technology company, saw its share price nearly triple on its public market debut earlier this week. Online insurance company Lemonade’s stock more than doubled on its first day of trading earlier this month. So too did online used vehicle trading site Vroom after it went public last month.
While none of those companies were likely as affected by the coronavirus crisis as Airbnb was, they were all losing money even before the crisis. Chesky and his investors have almost certainly been watching those developments closely and fantasizing about how their own company — one of the best known and most highly valued private firms — would fare with public investors.
Chesky has another reason to press forward with an IPO — employee pressure. Reportedly a significant portion of stock options awarded to some of the company’s earliest employees are set to expire later this year. Much of the compensation that employees see at startups comes in the form of shares and options; many trade higher cash salaries for the chance that they’ll see a big payoff when the startup goes public.
The easiest way for Airbnb employees to be able to realize the value of those soon-to-expire shares would be for the company to go public; if it doesn’t go public, there’s a risk that they’ll lose the chance to cash them in.
But there are reasons why Airbnb should wait
All that said, as Chesky indicated, it’s not a sure thing that Airbnb will go public this year. And there are some good reasons why it might want to delay its debut.
While investors have been hot for tech-related IPOs lately, the companies that hit the markets were not among those that were hardest hit by the coronavirus crisis. It’s unclear what investors will make of the public debut of a company that was particularly affected by the pandemic — especially if it attempts to go out before it can show a decent track record of recovery and renewed growth.
One potentially ominous sign for Airbnb is that the market remains down on travel companies. The share prices of the major carriers such as American Airlines and Southwest Airlines; the hotel chains, such as Hilton and Marriott; and the online reservation companies such as Expedia and Booking Holdings, are all still well off the levels they were at pre-pandemic. While Airbnb might be seeing a speedier recovery than those companies, investors are likely going to value it in part on the worth of those and similar peer companies.
Another worry for Airbnb is that the pandemic hasn’t gone away. While many countries have gotten the coronavirus under control, cases are exploding in the US, as well as in India, Brazil, and much of Latin America. In many of those Latin American countries, bookings have yet to bounce back after dropping off due to the pandemic, according to data from AirDNA, an industry research firm.
In the US, while bookings surged in May and early June, they’ve tailed off in more recent weeks, according to AirDNA’s data. That’s likely due mostly to a mix of a return to normalcy after many Americans scratched their itch to get out and a seasonal slowdown, said Scott Shatford, CEO of the industry research firm.
But the coronavirus could be playing a role too — and may play an even bigger one in coming months. Already, some states have started to reverse their reopening plans and reinstate restrictions on certain types of businesses. Further restrictions, including the re-imposition of shelter-in-place orders, are being debated or urged in some of the hardest hit areas.
There’s a lot of uncertainty over what the “new normal” is going to look like in terms of people’s lives and movements and what that’s going to mean for the travel business, Shatford said.
“Nobody has a crystal ball right now to see what it looks like three months from now,” he said.
And should Airbnb’s business weaken again, that could undermine its effort to go public.
So, yes, things look better for the company right now. And Chesky is right to be relieved. But don’t be surprised if Airbnb stays private a while longer.
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