Airbnb IPO filing detailed review

Airbnb applied for IPO. It’s long awaited initial public offering made in wrong time. Form S-1(registration statement under the securities act of 1933) provide insight into company’s financial and operational data that previously was confidential.

Airbnb is a Delaware corporation that was incorporated in 2008. The story started in 2007 when two cofounders was looking for a way to cover the cost of their San Francisco apartment. In San Francisco was hosted the design conference and all hotels sold out. Co-founders created website and offered a few airbeds in their flat to attendees of the conference. Since that day company grown in multi-billion dollar business.

Airbnb operate the global marketplace. As of September 30, 2020, more than 4 million hosts had 7.4 million available listings of homes and experiences. Airbnb listings available in appropriately 100,000 cities across more than 220 countries and regions. During 2019 Airbnb had 54 million active bookers and 247 million guests arrived.

During the initial months of COVID-19 pandemic, business shrink but in last a few months business rebound and started growing again. But in many countries (especially in Europe) more strict lockdowns introduced and less travel for citizens. People want to travel and for most of them domestic travel is the single option. People stay longer during the vacation and embrace work from anywhere.

In 2019 Airbnb generated gross booking value of $38B: $31.3B in hosts earnings, $5.3B in Airbnb service fees, $1.4B in taxes. During the nine months ended September 30, 2020, Airbnb generated gross booking value of $18B.

Airbnb will be listed on NASDAQ Global Select Market under proposed symbol “ABNB“. Class A common stock valued $0.0001 per share. In total four series of common stock available:

  1. Class A (2,000,000,000 shares) entitled to one vote.
  2. Class B (710,000,000 shares) entitled to 20 votes and convertible at any time into one share of Class A common stock.
  3. Class C (2,000,000,000) entitled to no votes).
  4. Class H (26,000,000) entitled to no votes and will convert into a share of Class A on a share-for-share basis upon the sale of such share of Class H to any person or entity that is not company’s subsidiary.
  5. 10,000,000 shares of preferred stock.
  6. Total 4,736,000,000 shares of common stock.

Airbnb underwriters presented on screenshot

Source: Airbnb S-1 form

Airbnb key metrics to measure business performance include:

  • Gross nights and experiences booked.
  • Cancellations and alterations.
  • Nights and experiences booked.
  • Gross daily rate.
  • Gross booking value before cancellations and alterations.
  • Gross booking value.

Airbnb IPO key risk factors

  1. The COVID-19 pandemic and the impact of it. Obviously pandemic could not last forever and a few vaccines on final stage of testing but it will take some time to develop heard immunity. So, timeline is not clear.
  2. Possible economic downturn may negatively impact the travel industry that already impacted by pandemic.
  3. In May 2020 Airbnb announced reduction in workforce of approximately 1,800 employees. Employees that lose job predominantly worked in marketing, design, customer service, Airbnb Luxe, Airbnb studios, etc. While Airbnb employees lost job in order to reduce expenses, top executives cut their salaries by 50% for 6 months only.
  4. Company has incurred net losses in each year since inception ($70.0 million, $16.9 million, $674.3 million, and $696.9 million for the years ended December 31, 2017, 2018, and 2019 and the nine months ended September 30, 2020, respectively) and may not be able to achieve profitability.
  5. Company’s adjusted EBITDA and free cash flow have been declining because of significant investments in new product, growth initiatives and infrastructure.
  6. Airbnb might need to raise more capital.
  7. Airbnb revenue growth has slowed down and will continue to slow down during the pandemic.
  8. Airbnb business depends on hosts maintaining their listings on platform and providing high level of hospitality.
  9. Airbnb must retain existing guests and add new guests to maintain growth.
  10. The travel industry is highly competitive. Online travel agencies: (Booking.com, KAYAK, Priceline.com); Expedia Group; Trip.com Group;Meituan Dianping; Fliggy Despegar; MakeMyTrip, etc. Internet search engines that display travel search products. Listings and Meta search engines: TripAdvisor, Trivago, Mafengwo, AllTheRooms.com, Craigslist. Hotel chains: Marriott, Hilton, Accor, Wyndham, InterContinental, OYO, Huazhu. Boutique hotel chains and independent hotels. Chinese short-term rental companies: Tujia, Meituan B&B, Xiaozhu. Online platforms offering experiences: Viator, GetYourGuide, Klook, Traveloka, KKDay.
  11. Change in law, regulations and rules that affect short-term rental of property.
  12. Company may be involved in various legal and regulatory claims, litigation and prelitigation disputes, etc.
  13. Changes in tax rate in US and around the world.
  14. Complexity of operating in 200 countries and managing transactions in local currencies.
  15. Airbnb platform rely on information and content published by hosts, guests and third parties. Not always guests expectations match the reality.
  16. In some countries it’s harder to find host and guests because of cultural norms. This may impact company’s revenue.
  17. Airbnb reputation and brand value is a key factor for growth. Any illegal activity inside the short-term rental could damage the brand image and will materially adversely affect the business.
  18. New offerings from the company may not generate enough revenue and put extra pressure on accumulated debt.
  19. Airbnb debt obligations contain restrictions that impact business.
  20. Insurance cover might not be enough.
  21. Company track certain operational metrics and inaccuracies possible.
  22. Possible intellectual property violation, copyright, trademark, patents, business non-public information, etc.
  23. Possible technical problems: data security breach, software & hardware malfunction, bugs in third party software, payment gateways malfunction, payment related frauds, unexpected errors, internet non availability, etc.
  24. Airbnb rely on Amazon Web Services and Google Maps.
  25. Risks related to natural disasters and climate change.
  26. Travel business is seasonal.
  27. There’s no public market for Class A common stock currently exists and after IPO stock price may drop. Stock price expected to be volatile and there’s no guarantee that shareholders will be able to sell shares above the offering price.
  28. Airbnb do not intend to pay dividends for the foreseeable future. Company paid dividends only ones and in future will retain all future earnings for company growth needs.

Airbnb key financial data from S-1 Form

Financial data provided in S-1 Form. In 13 years company accumulated debt and total number finally known. Since inception Airbnb did not generate enough revenue to cover all expenses. In 2017 and 2018 company generated less net loss. But in 2019 and nine months of 2020 net loss grown significantly.

Airbnb revenue consist of service fees, net of incentives (referal programs and marketing promotions) and refunds. Both host and guest considered company’s customers. Company recognize revenue upon check-in. Cost of revenue includes payment processing fees, charge backs, cost of third party services, cost of software, technology acquisition cost, mergers and acquisitions, amortization, etc.

Airbnb common stock valuation done based on American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation:

  1. Independent third-party valuations of common stock;
  2. The prices at which others have purchased redeemable convertible preferred stock.
  3. Financial condition, estimated future financial performance, the likelihood and timing of achieving a liquidity event (IPO or sale of company).
  4. The valuation of comparable companies.

Airbnb key executive officers and directors.

Salary and bonuses of key management personnels in Airbnb.

According to S-1 Form Airbnb aiming to potentially raise $1B with market valuation around $30B. Since the inception company raised $6.4B and it will be a great opportunity for the investors to see the return on their investments. It’s expected that Airbnb stock will be in demand among the retail investors.

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