Despite a depressed travel industry, many investors still view Airbnb as a solid investment option. The short-term rental company confidentially filed the paperwork to go public later this year The Wall Street Journal reported last month. The change in events has spurred increased interest among believers eager to get in on Airbnb stock.
While there is no details yet on the number of shares, share price, or the expected company valuation at the initial public offering, analysts believe that it will be lower than the company’s pre-pandemic value. Airbnb saw its valuation nearly halved from $31 billion in 2018 to just $18 billion in March while taking on an additional $2 billion of debt.
Although the travel industry has been savaged by the coronavirus pandemic this year, investors are still willing to bet on Airbnb stock in the hopes that the sector makes a triumphant rebound.
Rollercoaster Year for Airbnb Stock
Airbnb first revealed plans to go public in early March but the coronavirus pandemic threw a spanner in the works as the travel industry came to standstill. Like many of its peers, the company’s revenue took a turn for the worse and it was even forced to borrow $1 billion at 9%.
But in a surprising turn of events, Airbnb made the decision file for an IPO early last month. While some investors are looking forward to its highly-anticipated market debut, others say that it is a futile attempt to raise money from the public markets. AirBNB initially planned to go public as a direct listing but later switched gears to issue a traditional IPO and raise funding.
There are a number of reasons for the company’s rush to go public amidst a crisis. For one, company execs face immense pressure from investors to list the company as their stock options are set to expire this year. Second, Airbnb fared better than its competitors even though the travel sector had one of its slowest years in decades
With a presence all across the U.S and the world, Airbnb is a huge beneficiary of the “staycation” trend. Since June, the company saw an uptick in bookings as more people planned vacations closer to home. Unlike hotels, Airbnb rentals offer guests the option of a longer stay with more space to social distance and full-service amenities. This made Airbnb a popular option among people who wished to work from home from a different location.
The company’s relative performance to the tourism industry as a whole gave management the confidence to go public with Airbnb stock. The IPO market has also done really well this year with tech companies like ZoomInfo (NASDAQ:ZI) and Lemonade (NYSE:LMND) receiving wide acclaim from investors at its market debut.
A Slow Year For Travel
It’s no secret that the travel industry saw some of its biggest losses in decades. With flights grounded for months on end, hotel bookings at an all-time low and second wave of cases on the horizon, the future of the sector remains bleak.
Airbnb was no exception to this fallout. At the onset of the pandemic, customers rushed to cancel bookings and the company was forced to set aside $250 million to reimburse hosts. Following its losses, the rental company raised $2 billion to lower debt levels on its balance sheet.
Things weren’t looking too great in-house either. In May, Airbnb was forced to lay off 20% of its workforce and revenue was estimated to be lower by 50% year-over-year. Bookings on its platform also dropped by 56%, but this was still better than its industry peers. The losses took a huge toll on the company’s financials that were already dim due to high administrative costs in recent years. The damage caused by the pandemic slashed Airbnb’s valuation by half.
The funding raised in the IPO could serve as a lifeboat for Airbnb stock in the upcoming months.
The Bottom Line
There is a lot of speculation on when travel will return to normal and the lack of clarity has encouraged many investors to lay low on investments in this sector. Airbnb’s unique position and offering in the market could help revive some interest in the sector when it goes public but its overall success is largely dependent on the rebound of the industry as a whole.
The sentiment on Airbnb’s market debut is a mixed bag as some investors remain optimistic while others have questioned the timing and intent behind the decision. Nevertheless, the money raised through the Airbnb stock IPO could help refocus its core business.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.