Every S1, the stock market prospectus that American companies use to go public, is required to give mountains of numbers and disclosures that uncover the company’s financial and legal state. But really, what it tries to do is tell a story.
In March, Airbnb’s S1 was mostly written. Put together in the months after Uber’s troublesome flotation, WeWork’s disastrous attempt to go public and the struggles of newly listed online mattress retailer Casper, its story would be of a company different from those that had come before it. Bankers aimed to paint Airbnb as the Amazon of travel: its short-term rental business augmented by booming businesses such as experiences, in which tourists paid out for vineyard tours or comedy nights.
Airbnb shares were trading hands privately at a valuation of almost $40bn (£30bn). Employees at the company, some of whom had been sitting on stock options for almost a decade, were anticipating a payout that could make them millionaires.
For Brian Chesky, 12 years of hard work was coming to a crescendo. “We had a plan, what I thought was a clear life plan,” Chesky, Airbnb’s co-founder and chief executive, later told a podcast.
In mid-March, that plan fell apart. People were barely leaving their houses, let alone travelling. While much of Silicon Valley enjoyed a Covid-induced boom as lockdown families resorted to Zoom, Netflix and Facebook, Chesky was left scrambling to save his company.
Not only did travel bookings plummet, but millions of guests started demanding refunds, forcing Airbnb to intervene in a standoff between guests and its millions of landlords. The company was forced to lay off a quarter of its workforce – almost 2,000 people. Revenue was projected to drop by 50pc in 2020.
The company was forced to take $2bn in emergency loans, charging interest rates of more than 10pc. Share warrants included as part of the deal valued the company at just $18bn. Forget about going public; the company’s survival was on the line.
In the second half of May, more bookings were being made on Airbnb in the US than a year ago
Credit: JOHN MACDOUGALL /AFP
Nine months later, the world remains gripped by the pandemic, but Airbnb has bounced back. On Tuesday, the company is expected to release its long-awaited stock market filing, ahead of an initial public offering in the coming weeks. This time the story it will tell will be of a company that has been fundamentally changed by Covid, but has come back in a far stronger position than many of its rivals.
“It would be hard to design a better scenario for Airbnb in the long run,” says a former executive. “In the short run, it was immense pain. But I think the crisis really helped.”
As lockdowns started to lift in late Spring, tourists were still reluctant to get on planes and fly to major cities. But instead of shutting down, travel simply moved to staycations and rural escapes. Since properties on Airbnb are less skewed towards cities than major hotels, activity soon picked up. And because the company merely facilitates bookings, rather than owning the properties themselves, it was not saddled with heavy property costs as rooms went unused.
By late May, much of the world had rebounded. In the second half of the month, more bookings were being made on Airbnb in the US than a year ago. More than 60pc of those were in non-urban places, and over half were less than 200 miles from where people lived.
According to data from AllTheRooms, a company that tracks bookings on Airbnb, the number of nights booked in the US fell from 7.4m in February to 2.5m in April. But by July, the company was back to where it was a year ago, with 8.2m nights booked in the month. And today, more forward bookings – for trips in the future – have been made than at the same time last year.
How much Airbnb landlords earn in European cities
“Short-term rentals were Covid-proof to an extent.,” says Steven Jankowski, head of growth at AllTheRooms. “We’ve seen massive outcomes in rural versus urban areas. Their product was the right thing at the right time.”
James Beshara, who sold his payments company Tilt to Airbnb in 2017, says Airbnb was prepared for a crisis. Since its early days, the company has been battling regulators that have accused it of ripping out the fabric of cities, and the hotel industry that has, often justifiably, pointed out safety failures. Before Covid hit, the company banned open parties at its rentals following a deadly shooting in California.
“Within the walls, I felt like there was a crisis every three weeks,” says Beshara. It was like the bottom section of the Titanic, just trying to make sure it doesn’t sink.”
But he says this gave Chesky, Airbnb’s chief executive, to respond quickly to the pandemic.
Chesky, 39, has a star-studded list of close advisors, from Barack Obama to Jeff Bezos. “He has all the moral authority to make a decision and have everyone fall in line knowing that he has all the right long term thinking,” Beshara says.
Investors expect Airbnb’s valuation to have rebounded when it goes public. The company is likely to be worth more than $30bn, a valuation that could make it the biggest initial public offering in the US of 2020.
The company is in a stronger position than many hotel chains, which rely much more on business travel, an area that has been slower to rebound.
Brian Chesky, Airbnb chief executive, is hoping to float his company despite the pandemic's impact on its fortunes
Credit: Mike Windle/Getty Images
Questions remain over its future. While Airbnb was profitable in 2017 and 2018, it lost money last year, and will do so again in 2020. Growth was also slowing down, even before the pandemic, and the cost cuts earlier in the year forced the company to abandon many of its newer ventures, such as flight booking and a loyalty scheme.
Europe’s forthcoming digital services act could classify Airbnb as a “gatekeeper”, tying it to strict rules that ensure it does not hamper competitors.
“You’ve got a slowing top line, a great margin business, but then the bottom line losses with all these investments – it’s not a great cocktail,” says one tech fund manager. “They need to explain that to people, what the forward growth rate can be and what their plan is on the investment side.”
One suspects, however, that Chesky would have taken that situation nine months ago. At the very least, Airbnb’s survival no longer seems at stake.
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