Breakingviews - Airbnb’s IPO doesn’t require head-in-sand moment

FILE PHOTO: A woman talks on the phone at the Airbnb office headquarters in the SOMA district of San Francisco, California, U.S., August 2, 2016. REUTERS/Gabrielle Lurie/File Photo - RC2O4K9USOCF

SAN FRANCISCO (Reuters Breakingviews) - Is it possible that Airbnb could be a technology initial public offering that isn’t requiring investors to have their head in the sand? The home-sharing app’s revenue fell more than 30% in the first nine months of the year as Covid cut into travel. That isn’t great, but it isn’t bad relatively speaking either. And it forced the company co-founded by Brian Chesky to rein in unnecessary spending just as similar firms’ stocks rose. An IPO valuation above $31 billion – its last private marker in 2017 - isn’t a stretch.

Like most companies in the hospitality and travel sectors, Airbnb’s business was initially injured when global lockdowns put a kibosh on travel. The company laid off 1,900 employees and raised $2 billion in debt in a deal that valued the company at $18 billion, according to Reuters. That was almost half its 2017 private fundraising value, justified by a second quarter revenue drop of about 72%, according to a draft prospectus filed with the Securities and Exchange Commission on Monday.

But the company has since recovered, relatively, as people grew wary of shared spaces in hotels and sought longer term rentals in far flung locations. Hilton Worldwide revenue was off by more than 50% while Airbnb even posted a net income in the third quarter at $219 million.

Now the company is at a crossroads. In 2019, it plunged into new initiatives in China and spent money upgrading technology to have a better vetting system after some high-profile mishaps. That caused it to bleed cash but also helped find religion. Airbnb has since pulled back ambitions to offer flight bookings and launch a magazine.

The shares of rivals have also improved. Booking Holdings, the owner of and Kayak, is up almost 15% over the past year despite having a steeper revenue drop in the first nine months than Airbnb. On this year’s enterprise-value-to-revenue multiple of 13 times, Airbnb is worth some $40 billion, even assuming its top line ends down some 30%. On Booking’s next year’s revenue, that multiple is much lower.

Like other technology companies, Airbnb has a share structure that puts voting control into Chesky’s hands. That could become a problem. But investors may have grown more accustomed to this than a tech company stretching for an unrealistic valuation.


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