Mar 2, 2020
Airbnb's path to 2020 stock listing imperilled by coronavirus
Airbnb said to be planning direct listing instead of traditional IPO
One of the most anticipated public listings of 2020 is in danger of being derailed by the spread of the coronavirus.
Airbnb Inc., operator of the largest home-sharing service, has been working toward a stock market debut this year and was looking to start the process around March or April, people with knowledge of the matter said. That kickoff could get pushed back, some of them said. And now, with consumers and businesses canceling travel plans around the globe, Airbnb’s plan is at risk of slipping into 2021.
“You want to come in with your best foot forward in a public listing – and this virus is hitting Airbnb hard,” said David Hsu, a professor at the University of Pennsylvania’s Wharton Business School.
The company has to weigh the risks of entering the public markets after an unprofitable year, when investors have already been burned by the poor performance of other technology public offerings -- and when the travel sector is under so much pressure, Hsu said. “I wouldn’t be surprised to see this particular listing delayed,” he added.
Founded in 2008, Airbnb ushered in a new era of travel by convincing millions of people to open up their homes to strangers. The US$31 billion startup runs a global platform connecting those who are willing to rent their homes to guests looking for a cheap place to stay. The company collects a fee of about 15 per cent from guests and hosts. As of today, Airbnb has more than 7 million listings in more than 100,000 cities around the world.
“The coronavirus outbreak is causing travel restrictions and other disruptions that have a direct impact on the travel and tourism sector and beyond,” Airbnb spokesman Nick Papas said in a statement. When asked if Airbnb’s listing plans had been delayed by the outbreak, Papas pointed toward the company’s statement last year saying it intends to be publicly traded in 2020.
Further complicating the timeline, some of Airbnb’s employees have stock options that expire this year and they want the chance to cash out.
Airbnb has been letting guests and hosts cancel reservations in China, the epicenter of the virus, with no penalty up until April 1. This has slashed business in China by about 80 per cent, compared with a year ago, according to people familiar with the situation. They asked not to be identified discussing private information. The Wall Street Journal reported this impact earlier.
One of the main ingredients for a successful stock market debut is evidence of growth and -- if not profit, the potential for big earnings in the future. The virus will make that harder for Airbnb to show this year.
In 2017 and 2018, Airbnb made a profit, before interest, taxes, depreciation and amortization. Last year, the company lost money on that basis -- and that was before the coronavirus emerged, according to people close to the company.
Some investors, including a handful of Airbnb backers and would-be buyers of the shares on the public markets, are concerned that the virus will dent Airbnb’s results in the first half of 2020 and may also bleed into the third quarter, depending on how the virus spreads. That will leave little time in the rest of the year for the numbers to improve to support a listing, these investors said. They asked not to be identified discussing sensitive issues.
Bradley Tusk, a venture capitalist and former political strategist for Uber Technologies Inc., said the coronavirus outbreak could provide Airbnb with “some narrative cover” to either justify delaying its listing or its losses. “It’s not ideal,” Tusk says, “but in a weird way, if they were looking for something to blame a lack of profitability on this might actually provide a very convenient excuse.”The online travel sector has been among the hardest hit since the virus started dominating the news cycle a month ago. Airlines have halted flights, hundreds of hotels have shuttered and events are being delayed or scrapped entirely.
“If the Olympics get canceled it’s a good idea for Airbnb to think seriously about putting off their IPO” to next year, says New York University Professor Arun Sundararajan, an expert on IPOs. “It’s not a good idea for them to go public when the pandemic is still underway; there’s too much uncertainty to realistically price the stock.”Last week, Booking Holdings Inc. gave a bleak outlook for its first quarter, saying it expects room nights booked to drop as much as 10 per cent.
On a conference call with analysts to discuss the disappointing results, Chief Executive Officer Glenn Fogel said travel demand was decelerating across the world, but he added the sector would be quick to bounce back once fears subside. “I am confident that the business will be coming back,” Fogel said. “Travel is a basic need for people.”
Airbnb’s Papas reiterated this sentiment: “Although nobody can know the extent of the impact that the coronavirus outbreak may have, we believe that history shows that when global disruptions happen, the travel industry has bounced back in the long run.”