It has been a difficult year for Airbnb, a vacation rental online marketplace company because of its awaited plans for an initial public offering. The company was to file its IPO in March; however, the coronavirus pandemic changed everything.
However, things now seem fine with Airbnb as in mid-August; the company in secret filed its IPO paperwork with the Securities and Exchange Commission. The financial details were not publicized; however, the company was valued at US$18 billion in April 2020, which is very less compared to its US$31 billion valuations in 2017.
Just like the whole tourism sector, the coronavirus has had a huge effect on the finances of Airbnb. Due to COVID-19, as people are avoiding leaving their homes, new bookings have stopped, and cancellation rates have increased. Even after applying cost-cutting strategies like layoffs, there has been a huge loss to the company due to the refunds to hosts and guests. To help in this situation, the company fundraised US$2 billion in debt and equity securities in April 2020 with tedious terms. It is because of this that the choice to file its IPO and possibly list in 2020 has come as a shock to people. Critics bring into focus the coronavirus and various issues that keep coming up, like, fluctuating cancellation policies, which have caused mistrust among hosts and guests; new laws and guidelines in cities looking to regain housing for locals, and the continuous losses. Others focus on the dull IPOs from companies like Uber and Lyft, which fell in 2019.
Reasons to IPO
In Airbnb’s favor, pressure from employees was one reason to go public. One another reason is that fortunately, Airbnb has recovered better than its rivals from the coronavirus pandemic. While evaluating the data of June 2020, it can be seen that the booking rates were above expectations. Moreover, the Airbnb model could benefit from the shifting behavior of the host and tourist during the COVID 19.
Due to its restricted fixed costs, Airbnb’s expenses are much less when compared to the hotel sector. The company also benefited from the increase in domestic stay cations in rural settings and the shoot in demand for rural area retreats where people can practice social distancing. In contrast to hotels, rentals will in general encourage longer stays and can offer services, living space, and gardens. Studies display that the more roomy spaces of transient have been in a rage with holidaymakers and individuals needing to work from home somewhere else.
Notwithstanding huge cuts in advertising to lessen losses, Airbnb has solid brand recognition because of various past campaigns that took advantage of individuals’ craving to visit places as well as have a more legitimate experience. This assisted it to turn into the go-to stage for transient rentals during the COVID-19.
Hosts in rustic territories likewise reacted to the interest by listing. Then, metropolitan hosts reacted by changing their properties to the private rental, or significantly decreasing prices.
When the wide-ranging tourism and hospitality zone is frail, possibly Airbnb realises this as an opportunity to stay ahead with its IPO. Besides, stock markets in the US are on a record high, powered by a spur from Washington.
However, it remains to be seen for Airbnb, when will travel resume and result in profits for the company? This will decide whether present bookings increase will result in success.
Airbnb has been in a soup regarding safety issues, which have been in news for the past many years and have a huge role in a loss in 2019. The company spent US$150 million on safety, comprising confirming the accurateness of listings, building a 24/7 safety hotline, and even started employee bonuses, which can help with the safety.
With the coronavirus having already destructed the economy there are huge chances of more tax and regulation in major markets. Moreover, there is apprehension that the recent power of the stock markets is not based on robust economic details and can explode anytime.
Just like any other industry, success in the tourism industry is also not always sure shot. Airbnb must be already aware of the present conditions and economic constraints. Airbnb has over 7 million listings and the company is capitalizing on it.
It stands out as a different type of travel provider, which provides exclusive, reliable, and tailored experiences and is still the best in the tourism sector. The success of Airbnb depends on how travel will change post-pandemic travel rebound.