Airbnb's losses grow, as IPO tests appetite for post-Covid rebound

[SAN FRANCISCO] Airbnb, the home rental service that disrupted the travel industry and was itself disrupted by the novel coronavirus, took a major step toward one of the year's largest initial public offerings (IPOs) when it revealed declining revenue and growing losses in a prospectus on Monday.

The offering, which could value Airbnb at more than US$30 billion and raise as much as US$3 billion, will test investors' appetite for hospitality-related stocks in a year when the industry has been battered and its future is uncertain.

The company provides a marketplace for people to rent their homes, taking a percentage of the fees, and facilitates bookings for activities.

Airbnb's prospectus painted an optimistic picture, advertising its brand's association with unique travel experiences. "We have helped millions of people satisfy a fundamental human need for connection," the company said. "And it is through this connection that people can experience a greater sense of belonging."

In total, Airbnb brought in US$2.5 billion in revenue in the first nine months of the year, down from US$3.7 billion a year earlier. Its net loss more than doubled during that period to US$697 million.

Airbnb's revenue bounced back in its most recent quarter, giving it a profit. But because of the overall trajectory of shrinking revenue and the continued uncertainty of the novel coronavirus, the company is unlikely to be able to pitch Wall Street on the typical tech startup narrative of soaring growth.

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It was the first time Airbnb provided a comprehensive look at its finances. Airbnb was valued at US$31 billion before the pandemic, but some investors bought shares valuing it at US$18 billion after travel ground to a halt.

The company has since positioned its business around getaways that are within driving distance of people's homes, allowing it to recover from the disruption faster than hotels.

"It's going to be a mixed story," said Karen Xie, a professor at the University of Denver who researches the short-term rental industry. Airbnb's fast rebound showed it could win customers from hotels, she said, but that success could disappear with the virus surging again.

In another lockdown, she said, "they'll face a hard time again, and history will repeat just like last spring".

Airbnb follows a string of highly valued startups to the public market this year.

Listing shares in recent months, to mixed reviews, were Palantir, a data company valued at US$20 billion; Unity Technologies, a gaming software business worth US$6.2 billion; Snowflake, a data storage startup worth $12.4 billion; and Asana, a collaboration technology provider valued at US$1.5 billion. On Friday, delivery startup DoorDash also revealed its finances in preparation for going public.

The startups are taking advantage of an ebullient stock market that has defied the pandemic's economic destruction. Airbnb will most likely go public in December, giving investors time to absorb the results of this month's election.

Other tech-related public offerings have been delayed. Ant Financial, the Chinese financial tech company, was slated for the largest-ever public offering this month, valuing it at US$310 billion, with expectations that it would raise US$34 billion. But Chinese regulators suspended the offering after saying the company no longer met the requirements for a listing.

Airbnb's public debut has been anticipated for years.

The San Francisco company is one of the highest-profile startups to emerge from a generation of "sharing economy" companies born after the 2008 recession. The startups, which include Uber, DoorDash, WeWork and Instacart, rode a wave of smartphones, cheap cloud computing and gig work. Plentiful venture capital funding allowed them to stay private and put off turning a profit.

If Airbnb goes public in the coming months, the company will have squeaked its offering in before a compensation deadline affecting many of its employees.

Startups like Airbnb compensate workers, especially those who join in the earliest years, with potentially lucrative stock options and restricted stock units.

But if a company waits too long to sell or go public, that equity can expire and become worthless. If Airbnb goes public before the end of the year, its employees will avoid losing a large tranche of equity that was set to start expiring next spring.

The IPO could also enrich Airbnb's earliest backers, some of whom invested 12 years ago, while turning its founders into billionaires.

Airbnb has raised more than US$3 billion in venture capital funding. Its largest shareholders include Silver Lake and Sixth Street, which invested in the company as the pandemic set in. Sequoia Capital, Founders Fund and Accel also own sizeable stakes.

Airbnb's founders - Brian Chesky, who is the chief executive, and Nathan Blecharczyk and Joe Gebbia - each own around 15 per cent of its Class B shares. In a move that is common among Silicon Valley companies, the founders have carved out a special class of shares for themselves, which gives them 20 votes per share and disproportionate control of the company.

The three men founded Airbnb in 2008 after they rented out a spare room in their apartment to make extra money. That idea became a company, which has since expanded to 7 million listings in almost every country.

Airbnb's website helped bring the world of short-term rentals, once limited to vacation homes and timeshares, into city apartments, country cabins, spare bedrooms and treehouses, while advertising a message of authentic travel and "living like a local".

As it has grown, Airbnb has fought with regulators over the legality of letting people rent out their homes while communities have become increasingly agitated about the arrival of tourists, parties and even shootings in their neighbourhoods.

Airbnb put its plan for a public listing on hold in March, when the pandemic spurred a flood of cancellations. The company laid off one-quarter of its roughly 7,600 workers and raised emergency funding. Between April and June, revenue fell to US$335 million, from US$1.2 billion a year earlier.

By July, bookings had bounced back as more people sought getaways in country homes. Between July and September, revenue was US$1.3 billion, down from US$1.6 billion a year earlier, though Airbnb delivered a profit of US$219 million. It resumed work on its IPO.

The company counts Booking.com and Expedia Group, which owns the home rental site VRBO, among its competitors. This month, those companies reported steep declines in quarterly revenue compared with last year because of the pandemic.

Morgan Stanley and Goldman Sachs will lead Airbnb's public offering, which will list on Nasdaq. NYTIMES