Despite a brutal year, Airbnb is still planning to file an IPO in 2020. As a result of the coronavirus, the company's valuation has dropped down to $18 billion from $31 billion. Airbnb CEO Brian Chesky remarked that the company was completing its filings in January to go public but halted the process as the coronavirus' spread and impact became clear.
It's not surprising that second-quarter revenues declined by 70% to $355 million, and the company had losses of $400 million. Until case counts recede and people's confidence in the health situation returns, it's hard to imagine that Airbnb's trajectory will return to its previous path.
IPO Still On
However, the company is proceeding with its IPO plans, because it needs the money, and it believes that public markets will be receptive. In recent years, the stock market has taken a long-term view on companies with solid growth prospects. During the pandemic, tech-related travel stocks like Booking.com (Nasdaq: BKNG) haven't been punished in-line with drops in revenue and earnings, as the market is focused on the long-term. The biggest winning stocks in the past decade have been those that have carved out a dominant niche in a big market, and Airbnb certainly fits that profile.
The IPO market has been very enthusiastic, and the vast majority of new issues have been bid higher on their first day of trading. In July, there were 43 IPOs which was the highest number in any month since 2014. A recent example is Draftkings (Nasdaq: DKNG) which went public in April, while its primary revenue source - live sports, was shut down. It still had a successful debut with a 200% rally from its IPO date and was able to raise $3.3 billion. Further, DKNG is in a much more competitive industry, while Airbnb is the clear leader in its home-sharing niche.
Looking Ahead
Prior to the coronavirus, Airbnb's business had multiple years of consecutive growth. Its offerings were a popular alternative to motels and filled many underserved niches. Many people were building businesses through the app or earning a side income. In a sense, Airbnb allowed people to monetize their homes and was able to capitalize on demand that was previously underserved.
These factors have been depressed due to the coronavirus but not extinguished. If traveling and vacationing returns to pre-coronavirus levels in the next 12 months, Airbnb is likely to resume its pre-coronavirus growth momentum. Airbnb has said that bookings bottomed in May and have been moving higher on a month to month basis, although they remain well-off from a year ago. Additionally, there's uncertainty about what will happen in the fall and winter, when more people are indoors, schools are back open, and the virus' impact could potentially be compounded by flu season.