AirBNB IPO share worth as at December 10, 2020. Writer supplied

In early 2020, Airbnb’s administration introduced that to handle the slowing development in gross sales, it needed to cut back ancillary actions and deal with the corporate’s core power of mid-range and finances short-term leases. This was simply earlier than COVID-19 stopped the journey and leisure trade in its tracks.

Towards such a bleak backdrop, it was a shock when the corporate’s CEO Brian Chesky introduced that the web vacation rental firm would go public in December 2020 – and it did simply that on December 10.

Shares have been initially priced from US$45-US$50 (£34-£38) per share. This went as much as US$55-US$60 the day earlier than itemizing. By the point of the itemizing, the ultimate share worth was US$68. The Preliminary Public Providing (IPO) is predicted to herald recent money for the enterprise of as much as US$three billion, and if profitable, it’ll improve the worth of Airbnb near US$42 billion.

In keeping with particulars filed by Airbnb with the US Securities and Alternate Fee, the plan is for the enterprise to boost extra capital for funding future development.

Usually companies desire to launch IPOs throughout a part of sustained financial development to realize benefit of the arrogance out there. They keep away from IPOs throughout financial slumps and catastrophic occasions: like World Warfare I and II, the nice recession or a pandemic. Going by conventional company finance follow requirements, Airbnb’s resolution to go public was nothing lower than maverick. And its timing has attracted extraordinary consideration.

Airbnb’s IPO resolution in a sea of enterprise gloom

However Airbnb had some strategic benefits, the primary being its tech-based enterprise mannequin. Not like different leisure and vacation companies – comparable to motels and airways – Airbnb doesn’t have to spend massive quantities of cash on the fee related to the maintenance of its fastened belongings. As a substitute, Airbnb can efficiently move on the danger of such inflexible cost obligations to its “hosts” – the property homeowners. It then retains the worthwhile components of the enterprise for itself with sufficient agility to face systematic disruptions like Covid-19.

The corporate’s second benefit is that it has turn out to be a well-known title within the phrase of journey, constructing a robust model and a loyal buyer base. If we examine the gross sales within the first 9 months of the yr for 2019 and 2020, everybody suffered a drop, however the lower was least (in proportion phrases) for Airbnb amongst all its shut rivals like reserving.com and Expedia.

Along with its aggressive standing, ongoing market modifications additionally created confidence for Airbnb’s IPO. In direction of the tip of 2020, markets the world over began reviving. South-East Asian, African and Latin American journey locations reopened for enterprise , as vaccines for COVID-19 have been introduced. This bolstered confidence and hope for a return of “enterprise as traditional” and mirrored within the quick improve within the valuation of shares among the many journey trade. The shares of Easyjet and Jet2 went up by greater than 40%.

COVID-19 vaccine hopes bolstered confidence within the markets.

shuttershock, CC BY

Airbnb additionally managed to quieten its critics and keep away from aggravating native housing regulators. Nonetheless, adversarial native regulatory reactions isn’t particular to Airbnb. Amazon, Fb and Uber have all had their very own tales. Given the mixed bargaining energy of the Silicon Valley giants, there are restricted probabilities that any worldwide systematic regulatory change will occur within the close to future.

COVID-19 and Airbnb

The journey and leisure trade within the UK have been the primary casualties of the pandemic. Airways, motels and vacation houses noticed their income streams switched off virtually in a single day. The journey trade had already bid farewell to STA Journey, an company for reasonable flights. The newest UK journey statistics point out that the impact of the pandemic on the journey trade could end in additional enterprise collapses. The UN World Tourism Group (UNWTO) estimates that the journey and tourism sector has misplaced export revenues to the tune of US$910 billion to US$1.2 trillion.

As Airbnb enabled peer-to-peer consumption of journey lodging or experiences, it additionally suffered its justifiable share of economic stress. In Could 2020, it determined to sack 1,900 folks from their jobs – virtually 1 / 4 of its workforce and its market valuation fell from US$31 billion in 2017 to US$18 billion in April 2020. However with a market worth that touched US$60 billion, minutes after buying and selling start on December 10, it appears to be poised for some fast development.

Bullish strategy: Brian Chesky, co-founder and CEO of Airbnb, February 2020.

Wikimedia Commons, CC BY-NC-SA

Hope for “regular”

The journey and tourism trade is eager for a a lot quicker restoration than different market segments. There are two causes for this: first, there’s a psychological demand for journey and holidays after a really lengthy lockdown.

Second, the provision of money. A big a part of the working inhabitants saved a big portion of their revenue by not spending on commuting and leisure prices.

The Airbnb IPO appears to be boldly positioned proper on the anticipated starting of the restoration in Europe and the enhancing market circumstances inspired final minute share subject worth.

This profitable IPO have introduced within the required money to feed its relentless development, however greater than that, it has proved the standard of its strategic management. It has additionally set up its dominant place within the on-line leisure and journey enterprise for years to come back, additional boosting its aggressive benefit. In fact, we should keep in mind that these are simply predictions and solely time will inform.

For the markets typically, this IPO is a watershed motion that signifies the transformation in the direction of an financial restoration based mostly on hope for a return of “regular” life.

The authors don’t work for, seek the advice of, personal shares in or obtain funding from any firm or organisation that might profit from this text, and have disclosed no related affiliations past their educational appointment.