Airbnb Turns a Profit and Files to Go Public on the NASDAQ

Airbnb’s long awaited IPO is coming December, having filed for a $1 billion offering earlier this week, and a surprise profit reported.

Airbnb’s long awaited IPO is coming December, having filed for a $1 billion offering earlier this week, and a surprise profit reported.

Airbnb’s long awaited IPO is coming December, having filed for a $1 billion offering earlier this week, and a surprise profit reported.

Airbnb filed to go public this Monday, helping to offer the general public some insight into how the company’s been doing over the past few years. That insight came in the form of the company’s S-1, which detailed an expanding giant that was hitting recurring revenue in the billions.

However, this bit of news focuses more on the business operations of the company, and how the travel aspect has been changed. For more information on the financials, visit our Finance section in a few days.

In order to better understand how Airbnb was impacted from COVID, we need to look specifically at the new data released, helping to give a view as to whether their gain has been short-term, or a more secular change to cheaper travel.

Let’s get into it!

How did the pandemic impact Airbnb from Q1 to Q2?

Luckily, Airbnb prepared for this, and included a “COVID-19 Impact on our Business” section, with gross nights booked, cancellations and alterations, and then net booked.

That allows a look into the business without any inflated stats, and provides a clear picture. According to Airbnb, net bookings sat at between 24.5 million and 33.3 million up until February, where in March, net bookings flipped negative, to -4.1 million bookings, or a -114% change.

That’s an incredible effect on the company, since they rely entirely on bookings. Having a negative net booking means that there were more cancellations than active books, which guarantees that the business would be impacted.

Lower on the document, Airbnb contains a chart for average booking value trends, showing a 2.8 to 4.3 billion dollar value until March again, where booking value turned to negative 900 million dollars.

What are some risks for the future?

Airbnb goes very deep with information on its risk factors, which you can read about here, but they have a few main points.

These are:

  • COVID based impacts
  • Consistent net losses
  • Possible loss of hosts and stays
  • Possible loss of guests
  • Travel decline
  • Unsuccessful competition
  • Legal backlash and negative publicity
COVID Impacts

Airbnb clarifies that the pandemic has extremely disrupted its business, with thousands fired, millions in additional charges, reduced worker morale, and remote problems.

These are all completely understandable, but if the pandemic doesn’t leave quickly, this might result in long term damages for Airbnb.

Net Losses

Net losses of $70, $16.9, $674.3, and $696.9 million have been incurred over the last three years, with a total deficit of $1.4 billion and $2.1 billion over the last two years (2019 and 2020).

The company left a message with the historic losses:

“Historically, we have invested significantly in efforts to grow our host and guest community, introduced new or enhanced offerings and features, increased our marketing spend, expanded our operations, hired additional employees, and enhanced our platform. Beginning in the second quarter of 2020, as a result of COVID-19 pandemic, we have significantly reduced our fixed and variable costs including a reduction in force and a suspension of substantially all discretionary marketing program spend. However, overall, we expect to resume making significant investments in our business and our host and guest community, including improvements to our payments platform, trust and safety on our platform, technology, and infrastructure in the future. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses.”

Loss of hosts

According to the S-1, the number of listings on Airbnb has actually decreased recently, compared to an almost universal history of increasing, due to factors including (but not limited to): the pandemic, threatening of enforcement of laws, private groups adopting contracts, regulations, politics, and property damage.

This part actually shocked me, since I hadn’t known that Airbnb listings have decreased recently. Airbnb seems to be worried about this as well, since they have several pages dedicated to this section.

Loss of guests

The company explains this risk as involving COVID factors, failed expectations, increased competition, generic service, failed offerings, marketing declines, PR issues, and racial discrimination.

Travel decline

I think Airbnb explains this better than I would:

“Our financial performance is dependent on the strength of the travel and hospitality industries. The outbreak of COVID-19 has caused many governments to implement quarantines and significant restrictions on travel or to advise that people remain at home where possible and avoid crowds, which has had a particularly negative impact on cross-border travel. In addition, most airlines have suspended or significantly reduced their flights during this period, further decreasing opportunities for travel. This has led to a decrease in our bookings and an increase in cancellations and associated claims brought against us. We expect that COVID-19 will continue to materially adversely impact our bookings and business in 2020 and beyond.”

Failure to compete

The online booking and hospitality industry as a whole is incredibly competitive. There are hundreds of companies doing the same thing across hundreds of companies and trillions in markets. Airbnb is one of those companies, following others such as Booking Holdings, TripAdvisor, Expedia, Travelocity, etc. While with a unique business model, the entire industry is incredible competitive regardless. The company seems to agree with that, as they mention the difficulty of competition in their market, as well as the possible competition for hosts and guests. The S-1 says major competition comes from an incredibly long list of competitors, including:

Booking Holdings (including the brands Booking.com, KAYAK, Priceline.com, and Agoda.com); Expedia Group (including the brands Expedia, Vrbo, HomeAway, Hotels.com, Orbitz, and Travelocity); Trip.com Group (including the brands Ctrip.com, Trip.com, Qunar, Tongcheng-eLong, and SkyScanner); Meituan Dianping; Fliggy (a subsidiary of Alibaba) Despegar; MakeMyTrip; Google, including its travel search products; Baidu; and other regional search engines; TripAdvisor, Trivago, Mafengwo, AllTheRooms.com, and Craigslist; Marriott, Hilton, Accor, Wyndham, InterContinental, OYO, and Huazhu, as well as boutique hotel chains and independent hotels; Tujia, Meituan B&B, and Xiaozhu; Viator, GetYourGuide, Klook, Traveloka, and KKDay.

Airbnb furthers by explaining that many of that long list of competitors is adopting specific characteristics of Airbnb’s business model, reducing some of the uniqueness of the company, therefore reducing its competitiveness.

Legal backlash and publicity issues

Hosts live in over 220 countries with approximately 100,000 cities throughout the world listed. Airbnb has to conform to national, state, local, and foreign laws and regulations.

The company says these laws are ambiguous and hard to follow, but part of the issue is Airbnb’s tricky business model.

Their model is thought to reduce people’s want to stay in a certain area, increasing rent costs, as people transition their homes to Airbnb in a chain.

As neighbors see other neighbors become Airbnb hosts, it spreads, and soon rent is increased as issues arise over pricing, and legal battles occur.

There’s also the issue that states don’t know how to regulate Airbnb to ensure they get proper value from their citizens. Since there’s no way to officially license your residence as an Airbnb hosting area to the government, if you get caught, legal backlash flies everywhere.

Along with all of these physical legal issues, there’s also the online portion, with cybersecurity and personal information collection at the forefront. Airbnb, being essentially an online hub, is focused almost entirely on technology.

While that allows it to focus further on the platform, it also means that the entire system has weaknesses.

That’s where legal ramifications for technological issues pop up.