Short-term rental company Airbnb is going public, but further documents about how to invest in Airbnb stock are not yet available. So how and why will it IPO?
The company confidentially filed a registration statement Aug. 19. Since then, speculation has been the order of the day.
Airbnb has gone through several listed funding rounds. Investors are a who’s who of venture capital firms and Wall Street banks. There are also individuals on the list like Amazon (NASDAQ:AMZN) founder Jeff Bezos and actor Ashton Kutcher, who has been an investor in 25 different startups over the years.
All would like a successful IPO. But the pandemic forced a down round early this year, at an $18 billion valuation, and in May Airbnb laid off one-quarter of its staff.
The Pandemic Hurt Short-Term Rentals
Airbnb was founded in 2008 as a way for people to rent space in their homes. The name is short for “AirBed and Breakfast.” It has since expanded into handling entire buildings and tourism experiences.
Like Uber (NYSE:UBER), Airbnb doesn’t own its inventory or employ hotel workers. Instead it’s an online broker between renters and property owners. I have used the service once, renting a bedroom from artist Kimber Fiebiger when my son was changing grad school dorms.
The down round makes the valuation of the IPO open to question. Bloomberg said Airbnb revenue fell off by 70% at the height of the pandemic. More recently it seems to have roared back, with bookings up 20% from a year ago in June.
So, is it worth $30 billion? Is it worth $40 billion? The Financial Times reports a November 2019 valuation of $42 billion.
Should You Invest in Airbnb Stock?
Whatever the level, TV analyst Jim Cramer calls Airbnb “the steal of the century.” He said travelers are finding Airbnb safer than hotels or restaurants, and cheaper because it doesn’t support union jobs.
Lately there have been reports that Airbnb properties are coming back from the pandemic in better shape than hotels. While hotel bookings fell by 70% in March, short-term rental bookings fell by less than 50% and seem to have come back. Visitors are also staying longer, often using rental bedrooms as a work-from-home alternative.
All this has whetted the appetite of investors. A recent survey by EquityBee showed twice as many people wanted options in Airbnb than any other private company.
Still Controversial
Airbnb remains controversial.
It has been accused of making rentals unaffordable, even of destroying cities as investors buy rental property and toss out tenants.
This has increased demand for local regulation, which can be difficult for the site to track. There’s a bill in Congress which would force Airbnb to police rentals for local ordinance violations.
All this means that the Airbnb exit is no slam dunk. Wary of what happened to WeWork, Airbnb is reportedly looking at a direct listing or acquisition by a special purpose acquisition company (SPAC) as an alternative to an IPO. A SPAC has the company going public acquired by a publicly traded entity, then taking its identity in the market.
There have been 67 SPAC offerings so far in 2020.
The Bottom Line on Airbnb Stock
Airbnb stock is not the “slam dunk” Cramer makes it out to be. Like Uber, it is designed to arbitrage away local regulation and eliminate jobs. An Airbnb that is empty most of the time can draw more income than a hotel room that’s full most days. This draws speculators and distorts housing markets.
A publicly traded Airbnb will provide a great cash-out to Ashton Kutcher. But it will also face enormous political pushback on a global scale. Maybe that’s a good thing, but it makes the fate of your investment in Airbnb stock uncertain.
On the date of publication, Dana Blankenhorn held a long position in AMZN.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.
Investing through equity and real estate crowdfunding or asset tokenization requires a high degree of risk tolerance. Despite what individual companies may promise, there’s always the chance of losing a portion, or the entirety, of your investment. These risks include:
1) Greater chance of failure
2) Risk of fraudulent activity
3) Lack of liquidity
4) Economic downturns
5) Dearth of investor education
Read more: Private Investing Risks
