Despite the economic uncertainty caused by the COVID-19 pandemic, 2020 has been a rather active year for initial public offerings, or IPOs, especially in the real estate sector. And the most anticipated real estate IPO could be right around the corner, as vacation rental platform Airbnb is reportedly gearing up to go public.
With that in mind, here's what we know about Airbnb's plans to go public and what it could mean to the investment property owners and homeowners who list their properties on the platform as Airbnb hosts.
Airbnb's IPO: What we know so far
The upcoming Airbnb IPO has been the subject of investor speculation for some time, with Airbnb announcing its plans for a 2020 IPO last year but providing no additional details. However, it's now official that an upcoming IPO is indeed in the works. On August 19, Airbnb announced that it had submitted confidential IPO paperwork to the the Securities and Exchange Commission (SEC), officially declaring its intention to go public.
It's important to point out that we don't know many details at this point. For example, Airbnb did not release any of its financials along with its IPO filing. We have no idea how much revenue Airbnb generates or whether it's profitable or even on a path to profitability. Investors shouldn't expect to get a look at them until just a couple of weeks prior to the company's actual public listing.
We also don't know when Airbnb shares will make their stock market debut and actually start trading on a major stock exchange. How it works is that the SEC will review the draft Registration Statement Airbnb submitted, at which point the Airbnb IPO (and its IPO date) will really start to take shape.
One other important piece of the puzzle we don't know is the IPO price of Airbnb shares, how many shares will be offered in the IPO, or what valuation the company will have.
The company was valued at about $31 billion in 2017, but this has fallen substantially due to the effects of the pandemic on the business. In its most recent funding round (April 2020), Airbnb's valuation had plummeted to $18 billion.
What it could mean for Airbnb hosts
The main effects of the company's initial public offering are generally on insiders, early investors, and Airbnb backers who will now be able to sell their shares on a public market if they choose to do so or exercise stock options. And the IPO will certainly have an effect on private investors, who will have the opportunity to buy Airbnb shares for the first time. It will also be a major change for the company itself, giving it access to raising money on the public equity markets.
Generally, IPOs have little impact or implications for a company's customers, but there are some exceptions, particularly in cases where those "customers" actively help the company grow. One notable example is Uber (NYSE: UBER), which not only decided to give its drivers cash bonuses of as much as $10,000 as a "driver appreciation reward" upon going public but also allowed drivers to buy shares at the IPO price if they chose to do so. Buying shares in an IPO can be challenging for a retail investor -- they often have to wait until the shares actually start trading on the public stock market at whatever stock price supply and demand allows.
There has been speculation that Airbnb could do something similar. In 2019, Airbnb CEO Brian Chesky said, "We would like our most loyal hosts to be shareholders." The company expressed a desire to offer shares to hosts while it's still a private company, but an SEC rule change would be necessary before that could happen. Even so, the company could choose to do something similar to Uber's share purchase program.
It's clear that Airbnb wants to take care of its hosts during the IPO process, and that is likely to be even more true now after many of its hosts lost tremendous amounts of income during the pandemic. Many hosts weren't thrilled with Airbnb's decision to cancel nonrefundable reservations as the outbreak worsened. And allowing hosts to participate in the IPO, and even giving them shares, could go a long way toward repairing a strained relationship.
The Millionacres bottom line
It's certainly possible that Airbnb will allow its hosts to participate in its IPO in one way or another, but just like with the IPO itself, there aren't any significant details available at this point. Having said that, it does look like the company's long-awaited IPO is likely to happen later this year, so hosts who are interested in owning a piece of the company should continue to monitor the latest developments.