Airbnb is heading for the Nasdaq today. A statement was released by the company in which it publicly stated its plan to execute an IPO on this trading platform. Previously, Airbnb was closed in preparation for the IPO.
In particular, the aggregator filed an application with the US Securities Commission for placement in August, without informing the general public. With some pause, this data appeared in news feeds.
The valuation of the business by investors has changed dramatically over the course of this year. In April, Airbnb held an emergency round of direct funding for $2 billion at the height of declining revenue due to the global quarantine. And at the time, the total valuation of the company plummeted to $18 billion just a month until $26 billion was worth of the company, and $42 billion in November 2019. We’re seeing investors change their minds in the opposite direction today.
$30 billion is the last publicly-named figure (the most common unofficial estimate at the moment). By contrast, Booking.com, the nearest rival, now has a market valuation of $69 billion. The annual profits of the two major aggregators in 2019 were $15 billion and $4.7 billion respectively. This indicates that Airbnb’s investor value is now higher than that of its rival. In our view, the IPO valuation of the firm could well cross $40 billion against the backdrop of strong demand for these stocks. The listing of Airbnb can be one of the biggest business events of the year.
Airbnb shares could have a growth rate of about 30 per cent.
Airbnb published its financial statements as well as listed the key risks to its business model as part of the IPO. Rivalry with Google suddenly turned out to be among them. Type S-1, which often precedes the exchange listing process, has been released by the home reservation service. According to that document, Airbnb’s revenues decreased by just 18% year-on-year in the third quarter, which is much better than the dynamics of world tourism in general. The company’s revenue was $1.34 billion, with a $219 million profit.
After a challenging first half of the year, Airbnb shifted its attention from big cities to renting country houses and apartments, as well as cutting advertisement costs and laying off 25 percent of office staff, played a key role in the turnaround of the firm. The case of CEO and founder Brian Chesky, who lowered his base salary to $1 from $110,000 a year, is illustrative.
Europe, where Airbnb revenues remain at historic lows due to border closures, is a key growth reserve. In every year since its establishment in 2008, the organization has not shown a profit for all 4 quarters. This year would be no exception, according to Airbnb’s own predictions. In the fourth quarter, the service is forecasting a decrease in earnings. Among other challenges, Airbnb cites a $1.35 billion dispute over a 7-year-old episode with the U.S. tax authorities, as well as the loss of internet traffic due to Google algorithms.
Possibly the most dangerous is the last danger. The search giant Google is openly accused by Airbnb of having arranged the dilemma in such a way that prospective clients first see promotional deals from Google Travel and Google Vacation Rental services for rental housing. This decreases the Airbnb website’s organic traffic, lowers the return on SEO optimization, and potentially forces more money to spend on service ads.
To date, this dispute has not advanced to the stage of legal proceedings, but it does not prevent Airbnb from entering the European regulator’s allegations regarding Google’s exploitation of its monopoly role in the search market on the Internet.
In general, Airbnb’s IPO today, promises to be one of this year’s key events. We expect to see a re-subscription of the securities of the service as a result of which it could be more convenient for a retail investor to engage via initial placement funds in the purchasing of Airbnb stock. If the starting price is at the level of investor expectations and now for the whole company it is crossing $42 billion mark, then the growth potential of the shares could be more than 30 percent in the following months.