Michael O’Regan

It’s been a rollercoaster year for Airbnb and its much-anticipated plans for an initial public offering or IPO. The home sharing platform had planned to file back in March to go public but then coronavirus hit and its revenue nose-dived. 

Now, it looks like plans are back on track. Airbnb confidentially filed its IPO paperwork with the securities and exchange commission in mid-August. None of the financial specifics were revealed but the company was valued at $18 billion in its last funding round in April, which is a long way down from its previous 2017 valuation of $31 billion. 

Of course, like the entire tourism industry, the coronavirus pandemic has had an enormous effect on Airbnb’s finances. New bookings stopped, cancellation rates soared, refunds to hosts and guests cost millions and revenue fell, even as cost cutting measures like layoffs were implemented. To help mitigate this, it was forced to fundraise $2 billion in debt and equity securities in April 2020 with onerous terms. 

So the decision to file its IPO paperwork and potentially list in 2020 was surprising to some. Critics point to the ongoing pandemic and the many issues it continues to throw up: the hosts and guests that have been angered by changing cancellation policies, new laws and regulations in cities seeking to reclaim housing for locals, as well as the falling revenue and ongoing losses. Others point to the lackluster IPOs from sharing economy bedfellows Uber and Lyft in 2019, not to mention WeWork’s fall from grace. 

Reasons to IPO 

But there are lots of reasons to go public, including pressure from employees (shares held by early employees will expire this year). But another big motivation is the fact that Airbnb has rebounded better than its competitors from coronavirus. Booking rates were above expectations from June 2020 onwards and the Airbnb model could take advantage of changing host and tourist behavior during the pandemic. 

The company’s overheads are far less than the hotel sector due to its limited fixed costs. It also took advantage of the rise in domestic staycations in rural locations across the globe, and the increased demand for countryside retreats where people could safely socially distance. Unlike hotels, short-term rentals tend to facilitate longer stays and can offer full-service amenities, living space, and gardens. Research shows that the more spacious environments of short-term leases have been popular with holidaymakers and people wanting to work from home elsewhere. 

Despite broad marketing cuts to reduce losses, Airbnb has strong brand recognition through past campaigns like “Don’t go there. Live there” that tapped into people’s desire to not just visit a place but have a more authentic experience of it. This helped it become the go-to platform for short-term rentals during the pandemic. 

Hosts in rural areas also responded to the demand by listing. Meanwhile urban hosts responded by switching their properties to private rental, or dramatically reducing prices. 

While the broader tourism and hospitality sector is weak, perhaps Airbnb sees this stage of the pandemic as its time to shine and push ahead with its IPO. Plus, stock markets in the US are on a record high, fueled by stimulus from Washington. 

Questions Remain 

Questions remain for Airbnb, however. In particular, when will travel behavior revert to business as usual, if ever? This will determine whether current bookings growth will lead to profitability. 

Then there are the safety issues that have dogged the company for years and played a big role in Airbnb’s loss of profitability in 2019. It spent $150 million on safety initiatives, including verifying the accuracy of listings, creating a 24/7 safety hotline and even tied employee bonuses to safety. 

There is also the threat of more tax and regulation in major markets, which could emerge as authorities seek new revenue to pay for the effect of coronavirus on their economies. The basis of the favorable market conditions are also open to question, as there is concern that the current strength of the stock markets isn’t based on strong economic fundamentals and is a bubble that’s waiting to burst. 

Success in the tourism industry is never a given. Airbnb will be all too aware of this, having totally disrupted the hotel industry. Airbnb has more than 7 million listings – dwarfing the largest hotel chain, Wyndham Worldwide, which has 8,000 hotels. But rather than seeing this as a burden, Airbnb is capitalising on it. 

But for all its market positioning as a different kind of travel provider – one that offers unique, authentic and personalised experiences – Airbnb still sits firmly with the tourism sector. Like its competitors, its success still depends on post-pandemic travel rebound. 

Michael O’Regan is a senior lecturer in events and leisure at Bournemouth University. His column is reprinted under a Creative Commons license from The Conversation, a nonprofit news site affiliated with The Associated Press