Airbnb (ABNB): Everything You Need to Know for the IPO

Airbnb is an online rental marketplace for lodging, home stays, and tourism experiences.
The company does not own any real estate listings, but offers a platform through which people can take part in the sharing economy.
Airbnb announced its filing for an initial public offering (IPO) in August.
In this analysis, we’ll be going over everything investors need to know about the IPO, and my own insight on whether this is a golden opportunity.

Most of the information provided below is based on the S1 Airbnb Submitted to the SEC.
Disclaimer: This is not financial advice. This is meant for educational and entertainment purposes only.

Business Model
- Airbnb connects hosts who are willing to provide room, with guests
- Airbnb profits from charging a service fee to both the host and the guest
- While it initially started off as hosts providing bedrooms, the company has managed to find and expand on different types of lodges.
- Airbnb is well known for its systematic operations; they have a unique guest/host review system, rules regarding cancellations and deposits, and is oriented and focused on building a community.

Counterparts Cases
- Airbnb’s counterparts include companies like Expedia group (EXPE) and Booking Holdings (BKNG)
- It’s important to take into consideration the growing competitiveness within the booking market.
- Unlike Airbnb, both Expedia group and Booking Holdings are reporting solid earnings as their operating profits increase yoy.
- TripAdvisor (TRIP), which reported $156m in revenue for 2019 and an operating profit of $18.7m, while small, is another example of companies competing against Airbnb
- However, to be fair, these companies also all fell victim to the Covid-19 pandemic.

IPO Information
- The company will be listed on the NASDAQ exchange under the ticker ABNB
- The specific date of the IPO and price per share is yet to be officially announced.

Financials
- Due to Covid-19, the company’s revenue and profitability plummeted in 2020.
- Q2 2020 revenue was $350m, which is a 67% compared to Q2 2019, which recorded a quarterly revenue of over a billion.
- These numbers are less than half of the reported revenue for Q1 2020, of $842m
- As a result, the company’s valuation dropped from $31b to $18b.
- The fact that the company is not profitable yet is also quite fatal.
- In 2017 and 2018, there was a lot of hype around the company as they showed positive numbers for their EBITDA (earnings before interests, taxes, depreciation, and amortization)
- But, the company has been reporting inconsistent revenue ever since, and their sales and marketing
- As of September 30 2020, the company has $2.6b in cash, which is more than numbers reported for cash and cash equivalents in 2019 and 2018.
- Nonetheless, this is way below their short term net liabilities of $4.38b, which is considered a warning sign in terms of financial stability.
- Additionally, they have $1.8b in long term debt as well.
- Taking all of this into consideration, we could make an educated guess that Airbnb is trying to seek for funds through this IPO.
- It has already undergone its Series F investments, and is a unicorn company (a private company with a valuation over $1b), which makes it difficult to receive any further meaningful investments.

Covid-19 Impact
- Airbnb is part of the industry that was arguably most heavily affected by the Covid-19 pandemic
- They had a net 4.1m cancellations in March, when fear regarding Covid-19 peaked.
- I’ve mentioned this in a previous analysis, but Covid-19 has fundamentally changed the way we live forever
- As a result, Airbnb’s goal of creating a community of hosts and guests has faced a huge obstacle, as people prefer to stay at hotels, which involve lower risk of Covid-19 infections.
- Thus, whether people would want to travel via Airbnb after the pandemic is solved still remains extremely murky, as clear solutions to the current situation are yet to be proposed.
- Unlike other large tech companies, Airbnb lacks the cash to endure a long phase of hardship.
- Due to the impact of Covid-19, the company has laid off over 1,900 employees to cut costs.

Historical Cases
- We have seen other companies within the sphere of the sharing economy take part in IPOs that have failed miserably
- Companies such as Uber Technologies (UBER) and Lyft (LYFT) are prime examples. (Refer to the charts on the right)
- They were provided multiples way above their actual value, and their stock prices eventually fell way below the IPO price.
- WeWork, once valued at $47b, failed its IPO due to massive debt and shaky corporate structures, and is now valued at $2.9b
- Given past cases of other tech companies within the realm of the sharing economy having undergone failed IPOs due to overvalued multiples, it’s important to consider why Airbnb might be exempt from this case.

Mike’s Insight
In summary, while Airbnb’s listing is arguably the most important IPO of 2020, investors need to consider all possible factors before participating in the IPO. Its growing number of users suggest that the business is on the right track over the long run, but is faced with a serious external risk that the company has no control over. As this risk extends throughout time, the more damaging it is to the fundamentals of the business, thus providing room for investors to reconsider the proper valuation of the company. In my humble opinion, given that the company goes public at a $30b valuation, I think we’d see prices drop sharply after the IPO. Nonetheless, I could consider adding it to my portfolio as we see clearer signs of the world recovering from the coronavirus.

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