Going into 2020, Airbnb stock was a top pick for an initial public offering. But unfortunately, the novel coronavirus put these plans on an indefinite hold. For the most part, the company is fighting to get things back on track.
Yet despite these issues, CNBC still put Airbnb on its Disruptor 50 list for 2020, with a ranking of No. 41. But keep in mind that the company held the No. 7 spot a year ago.
There has also been a notable decline in the valuation. Last year, it was at over $30 billion. But now? Well, it’s at roughly $18 billion. Yes, this is a clear sign of the volatility with private investing markets.
A Backgrounder on Airbnb
The founding of Airbnb is quintessential Silicon Valley fare. It started during the financial crisis when Brian Chesky and Joe Gebbia were struggling to earn money. So they decided to rent out mattresses in their apartment in San Francisco.
It was a big hit. And Chesky and Gebbia saw that this could be turned into a thriving marketplace. But there was lots of controversy. Some cities saw Airbnb as illegal. Then there were illicit uses of the service. The most tragic was a mansion party that involved the murder of five people in October 2019.
But along the way, Airbnb has been able to adapt. It has taken actions to improve background checks and user verification. It has also implemented systems to cover property losses.
Airbnb and the Coronavirus
According to Bloomberg, the revenues for Airbnb increased 32% in the fourth quarter of 2019 to $1.1 billion. The company forecast that the top line would rise by 25% in Q1.
But of course, this year is more about restructuring the business. In May, the company announced layoffs of 25% of the workforce — or about 1,900 employees. There was also the suspension of various experimental and non-core initiatives. In a letter from Chesky:
“This crisis has sharpened our focus to get back to our roots, back to the basics, back to what is truly special about Airbnb — everyday people who host their homes and offer experiences.”
In the meantime, Airbnb is facing disruption threats. Renters have been creating their own sites and apps to find customers. This means not having to pay fees — that can be as high as 20% — to Airbnb.
Airbnb Stock: What Next?
The latest round of funding came in April as the company raised $1 billion. But it was a blend of debt and equity. With Airbnb stock at lower levels, the company’s management wanted to find ways to reduce the dilution. Besides, the debt markets have remained robust.
Airbnb has also taken actions to deal with the pandemic. To this end, it has developed the Cleaning Protocol, which involves a partnership with Ecolab (NYSE:ECL) as well as the guidance of a former U.S. surgeon general.
But ultimately, recovery depends on a return of tourism — and there are certainly signs of hope. Last month, bookings for Airbnb returned to last year’s levels. This is mainly due to a rise in domestic travel.
“Airbnb’s focus on experiences will be an increasingly important play in the next 12 months,” said Aaron Norris, vice president of market insights at PropertyRadar.com. “Regardless of whether we have a vaccine or treatment that’s really effective, more people are learning they can work and educate wherever they want. Sheltering in place has not been very fun. And I think we can see the data that markets where vacation rentals are still allowed and within driving distance from major markets are doing incredibly well. It’s still more affordable than hotel stays and allows individuals and families to have a change of scenery.”
Interestingly enough, there is buzz that the company may pull off an IPO by the end of this year, according to the Wall Street Journal. The company has selected Morgan Stanley (NYSE:MS) for the lead underwriter, and the deal would also include Goldman Sachs (NYSE:GS).
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
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