Five major takeaways from Airbnb’s IPO filing

Airbnb has revealed for the first time the impact of the coronovirus epidemic on its business, as it prepares for the stock market debut in December.

According to its IPO filing, the short-term rental platform made a loss of $ 700m on revenue of $ 2.5 billion in the first nine months of this year.

But beyond the headline figures, investors should also pay close attention to the underlying health of the business and consider potential areas of concern before the crisis strikes.

1. Airbnb growth was slow before virus

AirBNB’s IPO prospectus showed that the coronovirus epidemic had increased revenue well before it disorganized its business.

In 2016, Airbnb increased revenue by 80 percent from the first year to approximately $ 1.7bn, producing positive free cash flow. Months later, investors injected $ 1bn into new equity that valued the company at $ 31bn.

But by 2019, AirBnB was experiencing slow growth in its third year, with a 32 percent increase in revenue over the previous year. By comparison, ride-hailing company Uber increased revenue at a 42 percent rate in the final full year before its IPO in 2019.

Airbnb warned of the expected growth to continue its slow pace in the future, suggesting that its most explosive years may have already passed.

2. It has taken action to cut costs

The epidemic forced AirBnB to rely heavily on staff and marketing expenses.

The company had already come under fire from some investors for spending on new business lines. In 2019, sawdust shows that it spent $ 5.3bn to make $ 4.8bn in revenue.

After reporting two straight years of profits on an adjusted basis before interest, tax, depreciation and amortization, the company recovered losses of more than $ 250m on that basis last year.

The company’s filings said the loss was due to “significant investment in development initiatives and investment in our technical infrastructure”.

Investors could be encouraged by AirBnB’s recent cuts, including a 25 percent reduction in its employee base and a moratorium on discretionary marketing expenses, leading the company to net profit in the third quarter.

3. Its new businesses have not taken

Launched almost four years ago, AirBnB’s experience product pairs local guides with tourists. In the filing, however, the performance of the experience, which claims a potential market size of $ 1.4tn, is wrapped up with its figures for nights booked in homes.

As a result, there is no meaningful data on how the experience is performing – whether historically, or currently under its new “online-only” format.

Airbnb cites the inability to develop new offerings and levels “as Airbnb experiences” as a risk factor. This will be made more difficult by cutting marketing. While the company can claim that 91 percent of its traffic arrives organically – helped by its position as a verb for booking a room – this is not the case for experience.

The company may continue to use search-engine optimization to increase the experiment’s visibility, but the prospectus alleges that it is getting tougher as Google is rolling out its competing products.

“We believe our SEO results have been adversely affected by the launch of Google Travel and Google Vacation Rental Ads,” the filing read, “which highlights our platform’s prominence in organic search results for travel-related terms and placements on Google Do less. “

AirBnB sales decline, rivals are hard-pressed in column chart from Q1 to Q3 ($ BN)

4. What is the approach for hosts?

The epidemic has hurt AirBnB’s hosts, and the company has paid more than 204m of the $ 250m fund, which gives the host a quarter of the lost booking revenue due to the cancellation of the coronovirus.

The company said it has not seen a “physical” change in the number of active listings on the platform since the end of September last year. But hosts who rely on AirBnB to pay their mortgage or other bills may not survive if there is a travel ban in the medium term.

“It is not yet clear whether these travel losses during the Kovid-19 epidemic will have a financial impact on these individuals, or whether they will be able to keep their homes or conduct their business as they begin the journey, “The filing read.

As of the end of September the total number of listings on AirBnB was 7.4 meters, of which 5.6 meters were “active” listings – defined as rooms, homes, or experiences that were currently viewable on site and at least once Was booked

Filing said the number of lists overall has declined – without sharing how much – blaming a lot of factors including increased regulation and short-term rental taxes; Opposition to private groups such as homeowner associations; Perceptions of trust related to the risk of unauthorized parties or illicit behavior; And Airbnb’s own action to remove the listing against its policies.

The line chart of share prices gives discounts showing holiday companies back

5. Regulation is looming

Airbnb wants to point out that its business is not dependent on a handful in large cities. None of the 100,000 cities operated by it accounted for more than 2.5 percent of revenue.

Which is precisely because the filing stated that about 70 percent of the company’s top 200 largest cities had introduced some form of regulation on short-term rentals to cap some amounts on a revenue basis, by a host Can be introduced legally. In London, its set is 90 nights per year, while in Paris it is 120.

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The battle is on in places like San Diego – a top 10 city for AirBnB – that could adopt the need for short-term rental properties to register in a database, similar to a move by San Francisco in 2018 Resulting in thousands of stage-leaving hosts.

Comparing it with a wider array of complex laws has become a “burden”, the filing said, adding to rising costs and a knock-on effect to users.

In addition, “government interest has grown in regulating technology companies in areas including privacy, tax, data localization and data access, algorithm-based discrimination and competition,” the company said.

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