Can Airbnb Have a Successful IPO During COVID-19?

Airbnb’s valuation has plummeted from $31 billion to a mere $18 billion. Can the company still have a successful IPO?

2020 has investors hungry for IPOs, but will the appetite be there for a travel/hospitality company?  Airbnb is rumored to have its shares listed on the public markets as soon as the end of August in the middle of what has been a tumultuous year for the company.  Airbnb has seen its valuation tumble from over $31 billion to a mere $18 billion in its most recent round.

Things may not seem as grim for the company as some would have thought given the travel industry has seemed to come to a standstill in the recent months in light of the pandemic.  But, Airbnb has noted that activity has continued to pick up after the initial halt back in March/April and is now seeing bookings and revenues strengthen.

A potential Airbnb IPO could give us some insight into the travel industry and where it has been, but more importantly where it is headed.  Does Airbnb have an advantage over traditional hotels in the post-Covid world?  Will travelers feel more comfortable and safe shacking up in someone’s house as opposed to a Holiday Inn?

How the market values Airbnb once it is publicly traded will be something to keep an eye on.

Although bookings have ticked up in recent months, it is still anticipated that revenues for 2020 will come in at about 50% of 2019’s revenues.  But, a brighter future in 2021 may lay ahead if Airbnb becomes the preference for travelers if the pandemic has subsided.  Airbnb can potentially re-invent itself as an option for extended stay travelers in a world where physical location matters less for many people’s work lives.

Something I will be watching is how Airbnb will trade when compared to its $30+ billion valuation in 2018, when the most recent pandemic was the Spanish flu.  If we are anticipating that Airbnb’s revenues will be half of what they were last year, we could expect to see the valuation cut in half as well.  This would assume that investors are assessing Airbnb’s risk similarly across both years as the revenue multiple would be the same.  A multiple is simply a measure of risk.

So, if investors are willing to pay more for a dollar of Airbnb’s revenue in a post-Covid world that should signal that shareholders are viewing Airbnb as lower on the risk spectrum given the prospective economic and industry environment.  There is the potential for Airbnb to come out of the pandemic in a better position in the hospitality/travel industry, however, many believe that travel will never reach the level of activity that was the norm in the pre-pandemic era.

What is for sure is that there will be a lot of information as Airbnb shares become available and those quarterly earnings updates and guidance will equip investors with more knowledge to make decisions on the industry’s outlook.  2020 has been anything but normal for investors with an influx of day traders and novice investors looking to get in on the action.  I would anticipate that volatility will win the day when Airbnb shares become available to Robinhood traders, but after the initial mayhem, we will likely get some useful information on the travel industry and how that may impact related companies.

We won’t have a definitive answer to this question for quite a long time, but I think everyone wants to know – has the pandemic caused permanent long-term value destruction in the hospitality/travel industry?  Maybe Airbnb’s IPO will give us a small insight into finding an answer.  For more information on how your company’s valuation may be impacted due to COVID-19 please reach out to me at mtota@teamdkb.com.