Airbnb’s Trip to Public Markets

Written by Veena Murali

If you have traveled anywhere in the past few years, chances are that you’ve stayed in an Airbnb. The emergence of the sharing economy around the world has inspired the rise of Airbnb, an online marketplace for finding rental homes and lodging. Today, Airbnb is worth $30 billion USD and has over six million rentable properties in nearly 81,000 cities across the globe. The company has also expanded to include other diverse offerings that adventurous travelers simply cannot pass up. Some of these include Airbnb experiences, such as cooking classes and guided tours, and higher-end stays in Airbnb luxe.

Airbnb began humbly as two air mattresses in a room in San Francisco. Brian Chesky, a 37 year-old former bodybuilder, is the hero of this classic rags-to-riches Silicon Valley story; he and roommate Joe Gebbia transformed a part of their apartment to a “bed and breakfast” with the initial goal of making some extra money. Airbnb officially launched in 2008, and after receiving $600,000 in funding from Sequoia Capital in 2009, the firm continued its steady growth.

In September 2019, Chesky announced plans to take Airbnb public in 2020, making it another addition to the prominent generation of technology startups that has IPO-ed in recent years. However, amidst the troubling performance of Uber, Lyft, and other highly-valued companies, analysts fear the welcome Airbnb may receive in public markets. Unicorns, or companies initially valued above $1 billion by private investors, have especially struggled this year, while smaller, newly public startups like Zoom, CloudFare, and Pinterest are currently trading above their IPO price. WeWork, another company that finds itself powering the sharing economy, had to postpone its IPO due to skepticism surrounding its business model and corporate governance. However, analysts are more hopeful about Airbnb’s plans to go public due to the company’s stronger financial position. Contrary to the unprofitable companies that performed poorly in 2019’s IPOs, Airbnb raked in $1 billion in revenue in its last quarter and has reported positive earnings before taxes, depreciation, interest, and amortization in both 2017 and 2018. Analysts believe this provides a key advantage for Airbnb over other recently IPO-ed companies and are hopeful that the company will out-perform its technology peers. According to The Guardian, Kathleen Smith, a principal at Renaissance Capital, believes that “it’ll be a whole different reception for Airbnb, assuming that they can show they’re a profitable business without having to lose money on marketing.”

Airbnb is considering various nontraditional approaches in its trip to public markets; the option at the top of the list seems to be a direct listing, which companies like Spotify and Slack have utilized in past years. A direct listing is where a company lists existing shares instead of issuing new ones, thereby eliminating the need for an underwriter. Given the failure of its fellow big-name tech startups in 2019, it’s no surprise that Airbnb wants to try something different. Dennis Schal, founder of travel analysis site Skift, says “if the company can avoid the well-worn and costly initial public offering route that many of its peers have slogged through, and go for a direct listing instead, then that would be another jab at mainstream practices, make employees happy, and would fit in nicely with the Airbnb startup narrative and culture,”. 

Airbnb will cap off a decade that has witnessed a rapid startup growth and prominence of technology “unicorns” with its trip to public markets in 2020. It has recently acquired the app HotelTonight, which allows users to find last-minute hotel stays at discounted prices, and also plans to expand into transportation in coming years. The company shows no signs of slowing growth, and with the resources it will gain post-IPO, the limits of what Airbnb can accomplish seem boundless with its never-ending thirst for innovation. Still, the question remains, will it face the same doom of other large tech startups?