Surely if you have done any sort of travelling in the last few years, one of the choices you have had to make is whether to stay in a hotel or choose to live as a local in an AirBnb. For many people, the choice of being able to stay in a spacious house or apartment is much more appealing than staying in a small hotel room with hundreds of other guests. When AirBnb started back in 2008, it was not seen as the industry disruptor it is today, but oh how far it has come in twelve short years. AirBnb currently operates in over 100,000 cities across over 220 different countries and in 2018 added over $30 billion to the U.S. economy alone. In 2019, the company had two separate quarters with revenues of over $1 billion and just a couple years ago during its first round of private valuation, AirBnb was valued at roughly $31 billion, roughly a third of what Facebook (NASDAQ:FB) debuted at in the richest tech IPO in history. AirBnb was not just a site for renting apartments anymore, it was a bonafide game-changer for the stale travel industry. But then something called COVID-19 hit, and like many other companies in the sector, AirBnb was hit hard.
By mid-March during the heart of the pandemic, AirBnb bookings were down 90% and the company was then forced to cut costs, save money, and laid-off 25% of its employees in what should have been a devastating blow. Another round of private valuations had the company down to a value of $17 billion, only half of what it was worth a couple years earlier. And yet, with no vaccine in sight for the near future, and the travel industry decimated, AirBnb recently filed a draft registration statement for an IPO with the SEC. So why file now? At half of the previous valuation and with travel at near all-time lows? Well there are several reasons, with the primary one being that early investors and stockholders have a ton of stock options that will expire in early 2021, meaning they would lose out if the company delayed a public offering any later. Second, the markets are currently at all-time highs, despite the ongoing presence of the novel coronavirus, and IPO fever is running rampant amongst retail investors on platforms such as Robinhood. Just look at other companies that have IPO’d already this year like Lemonade (NYSE:LMND) and BigCommerce (NASDAQ:BIGC) who have given investors huge returns already in their limited availability. This fall promises to be even more exciting as private tech behemoths Snowflake, Palantir, and food delivery leader DoorDash all prepare for their pending IPOs.
But back to AirBnb and how they may do as a publicly traded company. Presumably their numbers have improved to the point where they can take themselves public as savvy investors would be looking at their balance sheet and financials to get a true view of the company’s standing. For their part, AirBnb has announced that things have rebounded in June and July, even claiming that bookings from March to June increased year-over-year from 2019. July saw a 22% rise in consumer spending at AirBnb as the local travel markets began to heat back up as people weary from months of quarantine, were chomping at the bit to do some sort of travelling again. The rural market spiked as travellers tried to get away from packed cities and closures of bars and nightclubs have led to a huge rise in house rentals to throw private parties. This, of course, has brought up one of AirBnb’s major ongoing issues which is battling with local lawmakers in each city. Some cities have banned AirBnb altogether from operating in efforts to funnel guests back into local hotels and businesses. The spike in parties also brings up social distancing issues which prompted AirBnb to ban all parties in their residences for the foreseeable future.
But travel may never be the same again post-COVID and potential investors may want to know how AirBnb can spin this into a happy ending. Travel industry giants like Expedia (NASDAQ:EXPE), TripAdvisor (NASDAQ:TRIP), and Booking Holdings (NASDAQ:BKNG) have all been hit hard by the coronavirus and let’s not even get into how the airline companies are doing. Hotel companies have also been devastated but this is where AirBnb can probably sneak in and grab a bigger slice of the hospitality pie. A hotel with 1000 rooms cannot possibly guarantee the same level of cleanliness that a one-bedroom apartment can, just by sheer optics, let alone the thousands of people that walk in and out of that hotel on a daily basis. This is where renting an AirBnb will be much more appealing to travellers moving forward, whether local or international.
Who knows when the worst of the coronavirus will be behind us? Some scientists have predicted that COVID-19 is so contagious that we may never be able to rid ourselves of its presence, a damning case for the return of travel normalcy anytime soon. And what of those local lawmakers who always seem to give AirBnb a hard time? Is it possible that more cities eventually ban the company to help local hotels and tourism? Possibly, but AirBnb seems to already have such an established brand power that it may be detrimental to local tourism economies to try to cut them out. This brand power is a reason why investing names like Jim Cramer and Zach Aarons are banking on the AirBnb IPO to be in Cramer’s words ‘the steal of the century’ when it debuts this fall. We can expect name recognition amongst retail investors to cause this stock price to surge whenever it does finally debut, and by that time, AirBnb could have itself enough of an industry moat to justify the high valuation, with an incredible opportunity for future growth and established profitability.