eResearch | This week, Airbnb, a U.S. technology company with a home rental platform, launched its initial public offering (“IPO”) on the NASDAQ under the ticker “ABNB”.
In the Form S-1, Airbnb priced its IPO between $44 to $50 per share, providing estimated net proceeds of $2.5 billion with an approximate valuation of $30 billion.
Airbnb finally priced the IPO at $68 per share and the stock opened at $146 per share on its first day of trading on Thursday.
Airbnb’s Business
Airbnb, previously known as Airbed & Breakfast, operates a peer-to-peer home rental platform that launched in 2008.
The platform enables homeowners (“hosts”) to list rentals for guests, while also supporting hosts with merchandising, pricing, scheduling, payments, liabilities, and security.
As of September 30, 2020, Airbnb’s platform had over 5 million active listings across 100,000 cities in more than 220 countries.
According to Technavio, the global vacation rental market is forecasted to reach $63 billion by 2024, growing at a CAGR of 7%.
The majority of guest visits on Airbnb’s platform are for short-term rentals, mainly used for vacations and business trips. However, Airbnb’s large network of hosts offers a wide range of accommodations with 14% of rentals reaching at least 28 nights of stay.
Since launching, Airbnb has partnered with over 4 million hosts that have rented out homes to over 800 million guests. Approximately 86% of Airbnb’s hosts are located outside of the U.S., with 63% of its revenue coming from those listings.
Hosts on Airbnb’s platform have earned more than $110 billion in total income with an average annual income of $7,900 since the platform launched.
Last year, Airbnb’s platform surged in demand from hosts with a record 23% increase in new hosts year-over-year.
COVID-19 Impacts
In March, the World Health Organization characterized the COVID-19 outbreak as a pandemic, which led to multiple countries ordering lockdowns.
As a result, Airbnb’s business declined significantly due to governments implementing travel restrictions and prohibitions on non-essential activities.
At the peak of the pandemic in April, Airbnb’s gross bookings decreased to 9 million, a 77% drop from January when it reached 38 million gross bookings.
In May and June, Airbnb’s gross bookings improved month-over-month by 89% and 55%, respectively, supported by demand increasing from guests booking local rentals.
FIGURE 1: Airbnb Monthly Gross Bookings – Last Twelve Months
In April, Airbnb raised $1 billion in term loans from investors including Silver Lake and Sixth Street Partners, to protect its business from impacts due to the pandemic.
In the same month, Airbnb raised an additional $1 billion in a syndicated term loan from institutional investors, bringing the total debt raised in April to $2 billion.
Airbnb continues to operate with high uncertainty as the pandemic enters the second wave in multiple countries followed by a second wave of lockdowns.
Financials
Airbnb generates revenue by charging homeowners a fee of 3% and by charging guests a fee of 12%. A Lodging Tax of 4% is also charged to guests, which is passed through and remitted to local authorities.
FIGURE 2: Illustrative Night Booked on Airbnb
For the nine months ended September 30, 2020, Airbnb generated revenue of $2.5 billion, a 32% decrease from the same period last year, and a net loss of $697 million compared with a loss of $323 million last year.
In 2019, Airbnb reported revenue of $4.8 billion, a 32% increase year-over-year, and a net loss of $674 million compared with a net loss of $17 million in the prior year.
Prior to the pandemic, Airbnb constantly grew revenues year-over-year, reporting revenues of $2.6 billion and $3.7 billion in 2017 and 2018, respectively. However, Airbnb has yet to generate any profits since its inception due to continuous investments in scaling its platform.
Vacation Rental Market
Airbnb mainly competes with other online vacation rental platforms, such as Booking.com, Expedia Group (NASDAQ:EXPE), Tripping.com, Tripadvisor (NASDAQ:TRIP), and VRBO.
It will be interesting to see if Airbnb can continue its growth to justify its current $90 billion valuation once travel restrictions are lifted.
