Airbnb Pre-IPO: Everything You Need to Know

by Peter Bosworth
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About Airbnb

With rumors of an Airbnb IPO around the corner, the company has dominated the headlines. If you aren’t familiar, Airbnb is a platform that allows travelers to rent out privately owned homes or apartments. Within the app, users can view rental spaces, communicate with hosts, post reviews and pay for their stay. As a host, it’s a great way to generate profit when you’re away from your home. Likewise, as a guest, it can be cheaper and more charming than staying in a hotel.

Airbnb offers more than 6 million places to stay in more than 81,000 cities and 191 countries. Last year, its listings in China skyrocketed 90%, while listings in London and Mexico City jumped 70% and 79%, respectively. Airbnb, like Uber and Lyft, capitalizes on the sharing economy. But unlike those ride-sharing companies, the home-sharing startup is actually making a profit.

Airbnb Revenue Growth

Airbnb makes its revenue from service fees. Hosts are charged a 3% to 5% fee for listing properties. Guests are charged a 6% to 12% commission when they complete their rental transaction. Airbnb profits from every transaction. As Airbnb’s rental listings grow across the world, so does the revenue.

Between 2014 and 2015, revenue grew 113%. That led to a 2016 valuation of $26 billion. By 2017, the company’s estimated revenue was $2.6 billion with a $100 million profit. At the end of 2018, Airbnb announced it was profitable for the second year in a row. And in Q3 of 2018 alone, the company generated $1 billion in revenue. As you can see, Airbnb has grown rapidly. The most recent valuation is $38 billion. That was an internal valuation, so it should be taken with a grain of salt. But at that price, Airbnb would be more valuable than Expedia at $18 billion and Hilton at $25 billion.

Some analysts predict Airbnb’s revenue to grow to $8.5 billion by 2021. That would be a 124% increase from 2018’s $3.8 billion.

New Airbnb CFO

Airbnb recently brought on Dave Stephenson, a longtime Amazon executive, to be the company’s new CFO. In a press memo, the company stated, “He will use his experience in growing large businesses quickly at scale to ensure we are investing for both growth and long-term profitability.” The addition of Stephenson suggests Airbnb will continue to spread around the globe.

Will Airbnb IPO in 2019?

Nathan Blecharczyk, Airbnb’s co-founder and chief strategist, said in a recent interview that the company was “taking steps to go public in 2019.” He followed that up by saying, “That doesn’t mean we will go public in 2019.” Evidently, there is uncertainty about when Airbnb will go public.

Lackluster IPO’s from Uber and Lyft this year may have discouraged Airbnb. The question that many growth-stage investors are asking is whether or not Airbnb needs to raise another round of money before going public. The company’s last series of fundraising was in 2017. Some investors find it increasing unlikely for an Airbnb IPO in 2019.

Competition and Difficulties

Even as a private company, Airbnb is encountering a host of issues from changing laws and regulations to public backlash:

  • Los Angeles, New York and Las Vegas are instituting a number of restrictions in an effort to slow rising housing costs.
  • Laws restrict the number of days a host can rent out their homes, require hosts pay a fee to qualify and mandate that hosts can rent out only their primary residence.
  • Some European cities, like Barcelona, are numbering the amount of Airbnb rentals in their city.
  • There are complaints that Airbnb increases the number of tourists who negatively impact neighborhood cultures.
  • Some hosts have been heavily fined by cities for illegal Airbnb rentals.

Airbnb’s Competition 

Airbnb has rivals left and right. From the very beginning, Airbnb has been a threat to the hotel industry. So much so that Marriott has started looking into its own home-sharing service. Valued at $43 billion, Marriott has the wealth and the resources to fight Airbnb tooth and nail.

Also, booking companies like Expedia, Booking Holdings, Trivago and Vrbo specialize in travel rentals. They are adding another function to their already established businesses. Expedia’s HomeAway is a prime example that has succeeded. Booking Holdings completely removed guest fees, which makes its pricing competitive.

Will the Airbnb IPO Be a Good Investment?

The Airbnb IPO may not be a good investment. A lot of the money is made pre-IPO. Wealthy and institutional investors can buy millions of dollars of shares at a reduced price. By the time the market opens for the masses, the share price is often inflated

Investing in tech startup “unicorns” is tricky business. The company may blossom, but it may be grossly overvalued. Only time can tell. Many believe Airbnb's IPO could be pushed back to 2020. But whenever Airbnb does go public, try to understand the risk-to-reward potential before investing.

Good investing,

Peter