7 Vexing Questions About an Airbnb IPO

Will Airbnb be hamstrung by its lack of vacation rentals in non-urban areas, the very locales that the company points to as ground zero for an era of travel redistribution?

Can Airbnb trim its performance marketing spend based on its brand strength and show investors a path to profitability without an inordinate wait?

These are some of the questions that Airbnb will need to answer if it indeed files confidentially to go public this month, and seeks to start trading later this year.

Here are a few of the important questions:

A Path to Profitability?

Airbnb officials pre-pandemic argued that it wasn’t just another gig economy company piling up red ink like Uber, for example, but ran a profitable enterprise — at least in its lodging business. From leaked financial documents over the last couple of years, Airbnb reportedly was profitable in 2018 but not in 2019 when marketing costs soared.

Bloomberg reported Wednesday that Airbnb’s revenue fell 67 percent to $335 million in the second quarter. Airbnb’s coronavirus-induced loss was around $400 million.

The company’s narrative has long been that it could grow with less dependence on Google than competitors because of Airbnb’s quantity of direct traffic and brand recognition.

“Like Expedia and Booking, Airbnb has likely cut back considerably on performance marketing spend, and given the company’s strong brand, perhaps they can present investors with a path to profitability, based on reduced customer acquisition costs, that does not require one to look multiple years into the future,” one investor, who declined to be identified, told Skift.

Is Airbnb’s Urban Bent a Position of Weakness?

If you buy into Airbnb CEO Brian Chesky’s long-term vision about the future of travel being primarily in non-urban, and under-touristed areas, then Airbnb would seem to have a disadvantage because its strength has been in urban short-term rentals.

Expedia Group’s Vrbo, with its whole-home vacation rental inventory in resort locations, has clearly made gains during the pandemic — and without doing much paid marketing through Google. Although Expedia is committed to reducing its dependence on Google, it’s hard to believe that Vrbo can maintain the levels of direct traffic — more than 80 percent, according to SimilarWeb — that it is currently benefiting from.

But are competitors’ gains against Airbnb merely a Covid-19-generated blip, or do they have long-term implications?

If increased competition and travel redistribution to non-urban areas means Airbnb’s business gets diminished by 25 percent, then how does it get back to where it was pre-pandemic, let alone grow? wondered Thomas Paulson, an investor and market analyst.

On the other hand, if Airbnb’s registration paperwork describes inroads in onboarding vacation rentals in resort areas, then that could potentially create investor excitement about the company’s growth prospects.

No Hotels, No Problem?

When Airbnb’s Chesky announced the company would have to lay off about 25 percent of its workforce, he noted that Airbnb halted its investment in its small but potentially impactful hotel business. Airbnb’s  2019 acquisition of HotelTonight spearheaded a push into boutique hotels.

Airbnb’s now-withdrawn push into hotels could place it in a weaker position than competitors such as Booking.com, Expedia, and Google, all of which can offer consumers a variety of lodging types to cover all consumer whims, and coronavirus recovery scenarios.

IPO, Direct Listing or SPAC?

Analysts we contacted disagreed on whether Airbnb would need to raise money through a traditional initial public offering, or could opt instead for a direct listing, which might have been its plan pre-Covid, and doesn’t involve raising proceeds.

As you may recall, prior to the pandemic turning the world on its head, Airbnb was mainly interested in a stock market debut because of the company’s concern about enabling employees to cash in soon-to-expire stock options, and it likely didn’t have a dire need to raise cash.

All that may have changed, however, because of the coronavirus crisis. In the interim, Airbnb secured about $2 billion in debt financing from private equity firms, albeit at steep interest rates. Airbnb would undoubtably be interested in paying off these borrowings, which came at double-digit interest rates, and move to offset cash-burn coming out of the crisis. Whether it should do so through an initial public offering or build up its financial resources, albeit at a slower pace, through a direct listing, is the subject of debate.

One factor arguing against the suddenly trendy SPAC, or special purpose acquisition company, option for going public, might be an Airbnb reluctance to be subject to the directives of a dominant shareholder versus having a more diverse ownership base.

Nagging Regulatory Issues?

How will Airbnb handle regulatory issues that could limit its growth prospects? While Airbnb has been making peace with various jurisdictions throughout the world, it still faces outright bans in many geographies.

Issues such as persistent bad publicity about unauthorized house parties gone wild, and opposition from affordable housing advocates will be persistent problems. Airbnb announced Thursday it has expanded measures to ban house parties to the UK, France and Spain, after rolling out a similar plan in the U.S. and Canada in July.

Getting Back to Basics?

What does Chesky really mean when he said recently: “We didn’t start this company to get into the real estate industry,” and that Airbnb’s true mission is to foster human connections?

Many people agree that one of the great values of staying at an Airbnb until a few years ago was the connection between guest and host, sitting around the rental’s kitchen table or on the deck and trading stories about the destination and life experiences.

But with the onslaught of developers investing in multiple properties to operate quasi-hotel businesses on Airbnb, is there any turning back? Will Chesky seek to limit the corporate hosts, and what would that mean for Airbnb’s growth trajectory?

Will Airbnb Get More Focused and Drop Its Attractions Biz?

By some accounts, Airbnb was still losing a ton of money on tours and activities, namely Airbnb Experiences, even before the pandemic.

It is an increasingly competitive sector flush with investor money, and one where innumerable companies have failed. Airbnb’s strategy to only go after a small, curated slice of that business seems destined to be a loser.