Airbnb Initiates Plans to Go Public Amid Revenue Crisis, is this a Good Time For an IPO?

Airbnb has filed privately for an initial public offering with the US Securities Exchange Commission. The short term home-rental company said on Wednesday that the details of the listing would be made available closer to the time of the listing, if it moves ahead with it.

The listing comes about a month after the company recorded more than a million bookings in one day in July. That was the first time daily bookings of that amount were recorded by Airbnb since March 3.

Airbnb’s operation was severely affected by the COVID-19 pandemic because its business depended on the movement of people and their willingness to share spaces. However, restrictions to travelling, as well the limits of social distancing and increased wariness of people because of the COVID-19 significantly dropped Airbnb’s business.

Consequently, the company laid off about 1,900 of its staff across the globe, accounting for about 25% of its workforce. It has also suspended marketing plans for the year.

Valuation

In April, Airbnb raised a debt funding of $2 billion which dropped its valuation to $18 billion. This is a significant decline from its valuation of $26 billion earlier in March. Some commentators have placed the company’s real valuation at $31 billion

Yet, even at $18 billion, Airbnb will still join an small and exclusive group of companies to hit the bourse with such a high valuation within the last 5 years. But should the company give itself a little more time to bounce back to its earlier valuation?

The travel market is seeing a gradual rebound, and more people are preferring to boycott hotels which have higher likelihoods of attracting crowds and being infected. The gradual increase in the demand for vacation rental homes is, therefore, a positive for the industry.

The number of shares that Airbnb intends to sell and the valuation it will seek has not yet been determined, according to the company.

Right time for an IPO?

Airbnb’s impending IPO will help the company strengthen its capital base, particularly considering the drop in revenue in recent months. The COVID-19 will be around for another year at the least and this means that the company’s business and revenue may not bounce upwards fast enough.

On one hand, with operational expenses ever rising and the company’s recent drop in valuation, postponing its IPO to a much later date may mean that it will go public at an even lesser valuation than whatever it could seek right now. This will affect the amount of stakes it could sell, as well as the amount of capital it could raise from the initial offering.

With COVID-19 still very much around, this might be the best valuation that Airbnb will get in a while

The increase in bookings witnessed over the last month could also signify a strong rebound for the business which will likely continue as the world continues to find a way around the pandemic. Holding off on an IPO could mean a higher valuation if business continues to improve. That would also mean a weightier capital base when the listing finally happens.

In October 2019, Bloomberg reported that Airbnb was leaning towards a direct listing instead of a traditional IPO. This way, it will not be paying huge amounts in underwriting fees to investment banks because it is neither raising new capital nor issuing new shares.

With the direct listing, Airbnb will make less than it will with a traditional listing. Investment banks, Morgan Stanley and Goldman Sachs will jointly play the role of lead advisers in the debut.