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Five key IPO proposals for Airbnb



Airbnb has revealed for the first time the impact of the coronavirus pandemic on its business as it prepares to debut on the stock market in December.

According to its IPO application, the short-term rental platform has made losses of $ 700 million with revenue of $ 2.5 billion in the first nine months of this year.

But in addition to the headline figure, potential investors also looked more closely at the health of the business before the crisis and a chance to look at potential areas of concern.

1. Airbnb’s growth slowed before the virus

Airbnb̵

7;s IPO prospectus showed that revenue growth slowed long before the coronavirus pandemic threw its business into disarray.

In 2016, Airbnb increased revenue by 80% over the previous year to nearly $ 1.7 billion, while generating positive free cash flow. Months later, investors poured $ 1 billion into new equity, which the company valued at $ 31 billion.

But by 2019, Airbnb is experiencing its third consecutive year of slow growth, with revenue up 32 percent from the previous year. By comparison, Uber increased revenue by 42% in the last full year before the 2019 IPO.

Airbnb warned that it expects growth to continue to slow in the future, suggesting that the most explosive years may have passed.

2. Take action to reduce costs

The pandemic has forced Airbnb to reevaluate years of high staffing and marketing costs.

The company has already come under fire from some investors over its costs for new business lines. In 2019, applications show that it spent $ 5.3 billion to generate $ 4.8 billion in revenue.

After reporting two consecutive years of adjusted earnings before interest, taxes, depreciation and amortization, the company lost more than $ 250 million on this basis last year.

The company’s requests say that the loss is due to “significant investments in growth initiatives and investments in our technical infrastructure”.

Investors can be encouraged by Airbnb’s recent layoffs, including a 25 percent reduction in employee base and a break in discretionary marketing costs, which helped the company make a net profit in the third quarter.

Graph of net income column, Q1 to Q3 ($ billion), showing increase in Airbnb losses

3. The new business has not started

Launched almost four years ago, Airbnb’s Experiences product pairs local guides with tourists. However, in the submission, the Experiences show, which is said to have a potential market size of $ 1.4 trillion, is wrapped up along with its figures for overnight stays booked in homes.

As a result, there is no significant data on how Experiences is doing – whether historically or currently under its new “online only” format.

Airbnb cites as a risk factor the inability to “develop new offerings and levels, such as Airbnb Experiences”. It will be hampered by marketing cuts. Although the company boasts that 91 percent of its traffic arrives organically – aided by its status as a room reservation verb – this is not the case for Experiences.

The company may continue to use search engine optimization to improve the visibility of Experiences, but the prospectus says it’s getting harder as Google strengthens its competing products.

“We believe that our SEO results have been adversely affected by the launch of Google Travel and Google Vacation Rental Ads,” the application said, “which reduces the popularity of our platform in organic search results for travel and placement terms on Google. . ”

Graph of revenue column, Q1 to Q3 ($ billion), showing a drop in Airbnb sales, but competitors were hit harder

4. What is the perspective for the hosts?

The pandemic hurt Airbnb’s hosts and saw the company pay just over $ 204 million from the $ 250 million fund it set up to reimburse hosts a quarter of the revenue from reservations lost due to coronavirus cancellation.

The company said it had not yet seen a “significant” change in the number of active listings on its platform from late last year to last September. But hosts who rely on Airbnb to pay their mortgages or other bills may fail to survive if travel restrictions remain in the medium term.

“It is not yet clear what financial impact the severe travel cuts that occurred during the Covid-19 pandemic will have on these individuals, or whether they will be able to keep their homes or run their businesses when the journey resumes,” it said. in the declaration.

The total number of listings on Airbnb was 7.4 million at the end of September, of which 5.6 million were “active” listings – defined as rooms, homes or experiences that were currently visible on the site and had been booked at least once. .

The statement said the number of listings had generally dropped – without sharing how much – blaming a number of factors, including over-regulation and taxes on short-term rents; opposition from private groups such as homeowners’ associations; perceptions of trust related to the risk of unauthorized parties or illegal behavior; and Airbnb’s own actions to remove lists that are contrary to its policies.

A line chart of revalued stock prices showing holiday companies bouncing

5. The regulation is outlined

Airbnb wants to emphasize that its business does not depend unnecessarily on a handful of big cities. None of the 100,000 cities in which it operates is responsible for more than 2.5 percent of revenues.

Which is just as good, as the application states that in approximately 70 percent of the company’s top 200 cities, based on revenue, they have introduced some form of regulation of short-term rents, imposing a limit on the number of nights, which can be legally offered by a host. In London it is 90 nights a year, while in Paris it is 120.

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Battles continue in places like San Diego – the city’s top 10 for Airbnb – that may accept a requirement for short-term rental properties to register in a database, similar to a move introduced by San Francisco in 2018, resulting in thousands of hosts leaving the platform.

Compliance with a wide range of complex laws has become “burdensome”, the application said, increasing costs and repelling consumers.

“In addition, there is an increased state interest in regulating technology companies in areas including privacy, taxes, data localization and data access, algorithm-based discrimination, and competition,” the company said.


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