With Airbnb ready to go public, it must partake in the ritual of filing an S-1, the registration required for all companies filing for an initial public offering (IPO). An S-1 gives potential investors the chance to finally learn what's been happening inside a private company. Over the years, Airbnb has been more transparent than some other unicorn startups, releasing some revenue numbers, but this is the first real peek inside its books.
The S-1 reveals bookings at Airbnb were on a strong upward trajectory in 2019. The company saw $38 billion in bookings that year, up 29% year over year. The coronavirus pandemic hit the short-term rental market particularly hard. Airbnb in particular was on track for a strong year, logging $4.2 billion in gross booking value in January and $3.5 billion in February. In March and April, it plummeted into negative territory, losing nearly $1 billion in bookings in March alone. At that point, the company temporarily stopped advertising to save money.
Airbnb has rebounded slightly in recent months, bringing in $2.5 billion in September. While the lack of international and domestic airline travel led to a drop in long journeys, the trend toward visits to nearby areas has helped Airbnb bounce back a bit. There's also currently a belief that, with COVID-19 still an issue, an individual house may be a safer vacation option than a large hotel.
Airbnb was founded in 2008 and has raised a whopping $6.4 billion in venture capital, including $1 billion in debt and equity in April. It will trade under the ticker symbol “ABNB.” A final price for shares or how many shares will be available has not been disclosed yet, nor is there a date the IPO will launch, although it is expected to be before the end of 2020.
The risks are substantial
Airbnb hasn't been profitable so far and has incurred net losses every year. In the S-1, Airbnb reported net losses of $70.0 million, $16.9 million, $674.3 million, and $696.9 million for the years ended December 31, 2017, 2018, and 2019, and nine months ended September 30, 2020, respectively. Its accumulated deficit was $2.1 billion as of September 30, 2020.
Airbnb's growth rate was stratospheric in its early years, but it has slowed over time. Additionally, the number of listings has declined and could continue on this path, especially because the COVID-19 pandemic has caused some hosts to rethink the value of short-term renting and pivot toward longer-term rentals.
Another concern is the liability factor. Some cities have put a ban on single-night rentals to stop the renting of "party houses" for raucous events. Airbnb has put rules in place to stop these as well, but there are still plenty of Airbnb horror stories. These are acknowledged in the S-1, as Airbnb notes it faces claims and litigation relating to fatalities and other violence.
A company finding its way
Like its fellow unicorn, Uber (NYSE: UBER), Airbnb has challenged the status quo. That has led to a lot of new laws and restrictions to address the impact of short-term rentals. In the S-1, Airbnb says it operates in around 100,000 cities in over 220 countries. In its top 200 cities, around 70% have some form of regulation.
While no single city accounted for more than 2.5% of the company's revenue, in 2019, 11.9% of the company's revenue came from just 10 cities. While Airbnb stated it doesn't believe current regulations in the top 10 cities are expected to have an adverse impact on operations, that's always subject to change.
Another concern is the competition. Airbnb is a leader in its space, but VRBO and others are stepping up their marketing and incentives to attract both hosts and guests. In the S-1, Airbnb says it has 91 issued patents and 119 pending patent applications, as well as various trademark protections.
The company is continuing to invest in experiences as well as stays. Airbnb experiences have been a newer arm of the business and can include tours, cooking classes, and other adventures, some of which turned into virtual classes during COVID-19. Airbnb estimates that the serviceable addressable market now is $1.2 trillion for short-term stays and $239 billion for experiences. It estimates the total addressable market is a whopping $1.8 trillion for short-term stays, $210 billion for long-term stays, and a surprising $1.4 trillion for experiences.
Is Airbnb investible?
While Airbnb is likely one of the buzziest IPOs of the year, it's also launching at a time when the future of travel is still uncertain. While multiple new COVID-19 vaccine trials, such as those from Moderna (NASDAQ: MRNA) and Pfizer (NYSE: PFE), show hope is on the horizon in ending the pandemic, Airbnb is still a company in recovery mode.
As part of the IPO, Airbnb has created a Host Endowment Fund it's seeding with over 9 million shares of Airbnb company stock to provide support for hosts. Airbnb faced criticism from hosts in the initial phases of the COVID-19 pandemic, so it's seeking to show hosts it's still a supportive partner.
At the end of a letter to potential investors inside the S-1, the three founders, Brian Chesky, Joe Gebbia, and Nate Blecharczyk, say: