San Francisco-based home-share company, Airbnb Inc., is planning a direct listing rather than conducting a traditional initial public offering for its 2020 public market debut, according to a Bloomberg report.
Last month, Airbnb officially released a press statement announcing that it would go public in 2020 after extended IPO discussions among executives in the past year.
The company didn’t give any additional details on its preferred timeline at the time: whether it intended to file for an IPO or take the direct listing route.
Most technology startups usually choose traditional IPO listings in public markets to either raise funds for expansion or provide a way for employees and investors to cash out.
However, there are a few like Slack Technologies, Inc. and Spotify Technology who decided to go the direct listing route.
A direct listing means a company can avoid paying millions of dollars to investment banks in underwriting fees because they don’t issue any new shares and don’t raise any new capital.
In choosing this option, Airbnb avoids being forced to open its books and there will be no issuance requirement for any new shares that could water down its share price. The market chooses the price at which the shares will run.
A good move?
This year, most tech unicorns who went public, received chilly receptions: Uber Technologies Inc. trading at 30% below its IPO price, Slack down almost 8% and Lyft Inc. down more than 40%.
David Hsu, a professor at the University of Pennsylvania’s Wharton Business School, told Bloomberg that bypassing the intricacies of a traditional IPO means Airbnb wouldn’t have to retell the story and expose wounds that are already there.
According to Bloomberg, Airbnb currently carries a $31 billion private valuation and explores a profitable business model that distinguishes them from the biggest unicorns that when public in 2019. It added that in the last quarter, it pulled in more than $1 billion in revenue.
Airbnb, over its 11 years of existence has become a popular broker site for home-sharing. This familiarity and recognition among the public makes a direct listing a very feasible endeavour. Hsu explained that being a well-known business model reduces the potential volatility of prices.
“They are already a well-known business model because lots of people have stayed in an Airbnb so this theoretical danger of volatility in the price may not be that significant.”
David Hsu, a professor at the University of Pennsylvania’s Wharton Business School, According to Bloomberg
As Airbnb prepares for its entrance into the public markets, it won’t be without risks. The company still has several outstanding regulatory issues in major cities around the world as its short-term rentals aren’t accounted for in many established tax and business laws.
Airbnb’s unconventional path to the Public Markets by direct listing certainly keeps noses out of their books. But investors will want Airbnb to fix its regulatory battles before going public as it could affect the company’s valuation.
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