Airbnb shares more than double in price in long-awaited Wall Street debut

Airbnb raised $US3.7 billion in its offering, making it the biggest US IPO this year, according to Renaissance Capital, which tracks IPOs. The company had initially set a price range of $US44 to $US50 for it shares, but raised that to a range of $US56 to $US60 earlier this week indicating rising investor demand.

Airbnb’s listing comes a day after another San Francisco-based company, DoorDash, soared through it initial public offering, the second largest after Airbnb’s. DoorDash’s stock jumped 85.8 per cent to close at $US189.51. The meal delivery app raised $US3.4 billion with its offering.

Airbnb wants to add more hosts and properties, expand in markets like India, China and Latin America and attract new guests.

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First, it will need to recover. Airbnb – which has never posted an annual profit – said its revenue fell 32 per cent to $US2.5 billion in the first nine months of this year as the coronavirus forced travellers to cancel their plans. The company delayed its IPO – initially planned for the spring – and funded operations with $US2 billion in loans. In May, Airbnb cut 1900 employees – or 25 per cent of its workforce – and halted programs not related to its core business, like movie production.

But in the months since, Airbnb’s business rebounded faster than hotels as travellers felt safer booking private homes away from crowded downtowns during the pandemic. In Miami, for example, short-term rental occupancy reached 83 per cent in October, while average occupancy for hotels was 42 per cent, according to STR, an accommodations data firm.

Airbnb said the number of nights and experiences booked, which plummeted 72 per cent in April compared to year-ago levels, were down 20 per cent in September. Airbnb debuted experiences – from cooking classes to surfing lessons – in 2016.

Airbnb now has 7.4 million listings, from castles to treehouses, in 220 countries. They are operated by 4 million hosts. The company controls around 39 per cent of the global short-term rental market, according to Euromonitor. It’s the market leader in Europe but trails VRBO, a vacation rental company owned by Expedia, in North America.

Looking ahead, Airbnb thinks it could see a surge in business from people who are able to work remotely.

“We believe that the lines between travel and living are blurring, and the global pandemic has accelerated the ability to live anywhere,” Airbnb said in a recent financial filing.

It could also expand its offerings further into boutique hotels, as it signalled with its 2019 purchase of last-minute hotel room supplier Hotel Tonight.

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Still, Airbnb acknowledges it will be difficult and expensive to attract new hosts and guests. Its revenue growth rate was already slowing in the years leading up to the pandemic.

“I do think the company will benefit from the pent-up travel demand once the vaccine is widely distributed, but why would someone want to buy into a travel-related, unprofitable business with slowing growth?” said Scott Rostan, the CEO of Training the Street, which advises Wall Street analysts.

Airbnb was born 13 years ago in the San Francisco apartment shared by Brian Chesky – now the company’s CEO – and Joe Gebbia, who leads its design studio and Airbnb.org, its charitable arm.

Chesky and Gebbia were looking for a way to subsidise their apartment. When they learned a design conference was coming to town and hotels were full, they set up a website – AirBedandBreakfast.com – and rented out air mattresses. They got three takers. In 2008, they formed a company with Nate Blecharczyk, a software engineer.

Home sharing wasn’t new. VRBO was launched in 1995. Booking.com, another older rival based in Amsterdam, mainly offers hotel rooms but has also branched into vacation rentals.

What Airbnb did differently was focus on affordability, letting hosts rent out spare rooms and sofa beds, said Tarik Dogru, an assistant professor in the Dedman College of Hospitality at Florida State University who studies Airbnb. Guests strayed further into neighbourhoods than they would if they stayed at a hotel.

“Airbnb offered that feel of authenticity for those who are looking for it,” Dogru said.

That has sometimes been a problem. The company has angered some cities, which accuse it of promoting overtourism and making neighbourhoods less affordable by taking housing off the market. Los Angeles, Paris and even Airbnb’s home city of San Francisco have passed laws restricting its rentals.

Airbnb’s rapid growth – the number of hosts and active listings grew more than 20 per cent in both 2018 and 2019 – has also made it difficult for the company to ensure quality. Last November, Airbnb promised to verify all its listings to make sure they match the photos on its site. It also spent the last year removing party houses and tightening rules for guests after a deadly 2019 shooting at an illegal Airbnb house party in California.

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Relationships with hosts and guests have been rocky at times. After multiple reports of racist behaviour targeting guests, Airbnb instituted a nondiscrimination statement that all guests and hosts must sign. It won’t display a guest’s profile photo until a property is booked, so a host can’t deny a room based on a guest’s race.

And earlier this year, hosts revolted after the company let guests cancel bookings and get full refunds due to the pandemic. Airbnb responded by promising $US250 million to hosts to help make up the shortfall.

AP