On Oct. 3, Reuters reported that Airbnb now plans to IPO in December, taking advantage of an unexpectedly sharp recovery in its business. In August, the vacation rental company had confidentially filed to go public, allowing the firm to start the IPO process without Wall Street looking over its shoulder.
As Airbnb’s blockbuster IPO approaches, investors should pay close attention. That’s because Airbnb has the signs of a great tech investment: a fast-growing technology company working in a beaten-down travel industry. Already, the company has recovered far faster than expected amidst the pandemic.
As Airbnb’s IPO approaches, other surprises have emerged in its listing process. Don’t get blindsided — here are five things investors need to know about the incoming stock.
1. Airbnb Will Hide its Financials Until November
“The company’s current plan is to make its filing publicly available in November after the U.S presidential election and is targeting an IPO some time in December,” Reuters reported. That means, under the SEC’s confidential filing rules, Airbnb’s financials might not become widely available until just fifteen days before its initial roadshow.
Why the secrecy? The company has kept its finances hidden to “limit secondary market activity.” For example, some employees could try to get cash loans against their stock options, which the company wants to prevent. It would also prematurely establish a value for Airbnb’s equity.
By keeping a lid on its financial information, the company isn’t necessarily trying to hide skeletons in the closet. Instead, it’s looking to stay in control of its upcoming IPO. This is a good sign for would-be investors. In other words, don’t get turned off by Airbnb playing things close to the vest.
2. Facing a “V” Shaped Recovery
Of course, the pandemic hit the travel company’s bottom line hard. According to Bloomberg, revenue at Airbnb plunged 67% in the second quarter of 2020. That quarter, CEO Brian Chesky even announced a 25% reduction in the workforce, laying off 1,900 of the company’s 7,500-person staff. The company’s future looked grim as travelers opted to stay home and leasers cancelled listings.
But then, something strange happened: Airbnb saw a V-shaped recovery. By June, it had staged a comeback as pent-up demand hit the site.
“It’s not fully recovered, but it’s recovering way faster than any one of us imagined,” Chesky said on a Fortune podcast hosted by Alan Murray and Ellen McGirt. “We are above where we were last year, and we could get even higher than what we would have forecast before COVID.” Unexpectedly, 2020 turned out to be even better than 2019 for the vacation rentals company.
By strategically deciding to list in December, Airbnb will have access to its Q3 data. That would presumably show this stunning recovery and raise the value of its shares.
3. A Shot at $150 After IPO
On top of this resurgence, Airbnb could be worth far more than its recent appraisals of around $21 billion. That’s because, as the novel-coronavirus pandemic grinds on, Airbnb will benefit as hotels close down.
In September, investment bank RobertDouglas reported that 34% of New York City hotels were delinquent on loans. “Many hotels will definitely close,” said Doug Hercher, the bank’s principal and managing director. Already, iconic hotels — from the Hilton Times Square to the 1,600-room Palmer House in Chicago — have shut their doors for good, taking hotel supply off the market.
It’s hard to know how far the hospitality crisis will spiral. In April, a Bernstein report estimated that only 2% of the global hotel supply would shut down. Since then, industry groups have estimated that in some areas up to two-thirds of hotels could end up closing permanently.
But the longer the pandemic goes on, the more Airbnb stands to gain. Many new hotels take almost four years to construct, according to The Real Deal, a real estate publication in New York. This means the industry could take years to bounce back. Airbnb, meanwhile, will recover room supply far faster.
If that happens, the company might yet regain the $50 billion – $70 billion valuation it held in 2018.
4. Worth More Than Marriott
Even if Airbnb doesn’t reach one of its higher pre-pandemic valuations, though, it will soon outrank Marriott International (NASDAQ:MAR) — the world’s largest hotel company — by enterprise value. The home-sharing site is so valuable that it’s worth even more than the top-three cruise lines put together.
Why? It’s because Airbnb is growing fast.
In 2017, the company earned around $2.6 billion in revenues, according to financial statements obtained by the Wall Street Journal. By 2019, that figure had almost doubled to $4.8 billion. At that growth rate, the company could eclipse Marriott’s $20.9 billion revenues by 2024.
What’s more, profits typically grow far faster in the tech world, given lower cash investments and higher profit margins– often, margins at software companies tend to be higher than that of travel companies. With Airbnb being a hybrid of these two industries, it’s clear the company has a competitive edge.
5. Expanding into Hotels
Finally, Airbnb has been quietly exploring options to build entire home-sharing apartment properties. In 2018, the company partnered with Miami-based Newgard Development Group (NDG) to construct 14 apartment buildings. So far, the project hasn’t seen much success. Only two buildings have opened in Nashville and Orlando, and the home-sharing company is now locked in a lawsuit with the developer.
But don’t expect Airbnb to shy away from expansion.
“Airbnb is chasing a multitude of growth strategies,” according to the Financial Times, “including Luxe — intended to compete with high-end rental firms such as Onefinestay — and Experiences, where locals host activities for tourists such as cooking classes or sightseeing tours.”
The deal with NDG was central to that drive, enabling Airbnb to add high-quality rooms without buying the property outright. But as the company makes its filings public, don’t be surprised by these outside ventures.
What Will It Be Worth?
Investors will get a first look at Airbnb’s financials in November. In the meantime, outsiders will have to piece together information from company snapshots and financing rounds.
In April, Airbnb raised $1 billion in debt from Silver Lake Partners, valuing the firm at $18 billion. Coming at the pandemic’s peak, interest rates topped 11%-12% on the deal. Since then, the company’s valuation has recovered. A private funding round valued Airbnb at $31 billion, and Silver Lake is reportedly targeting a valuation of $40 billion to $50 billion once Airbnb IPOs.
Regardless, investors will be in for a pleasant surprise come November. With sales starting to recover to 2019 levels, Airbnb looks set to rebound.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.