Airbnb: room with a view

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Maybe it was not planned this way. But Airbnb is undoubtedly thrilled that two coronavirus vaccines have shown effectiveness in the days before it released its initial public offering prospectus.

The touchy-feely unicorn was slammed by the collapse in travel prompted by the global pandemic. After its revenue had grown on average by 37 per cent annually between 2017 and 2019, sales were down nearly a third in the first three quarters of this year. It had to adapt to survive. The company fired a quarter of its workforce, nearly 2,000 workers, earlier in 2020 and then raised $2bn of expensive rescue capital from private equity companies.

The benefits of this newfound discipline may be that IPO investors are ready to back a recovery that will be driven by the end of a public health emergency and the willingness of the world to explore once again.

In 2019, Airbnb generated $4.8bn in revenue. However, at the same time it made the conscious decision to spend freely on marketing, technology and new services that were adjacent to its core room bookings business. Free cash flow that had hit $500m in 2018 fell to just $100m last year. Airbnb makes money by skimming fees from room hosts and guests. Its gross booking value — the sum spent on its platform that went to room hosts, taxes and fees to the company — was $38bn last year.

If revenue growth in 2020 had been the same as it was the year before, Airbnb would have had total turnover of $6.3bn. Instead, the figure will be about $4bn.

The question for potential investors is whether the company’s previous growth trajectory will bounce back by 2022. The company is seeking a valuation approaching $30bn, a rosy figure at a time when the pandemic is still burning out of control.

Still, shares of online travel agency Expedia have almost tripled from the March lows and are even slightly ahead of the S&P 500 for the year. The hope is that 2020 and even the first part of 2021 are aberrations that will not linger. It is no surprise that Airbnb is seeking to tap the market while such blue-sky thinking resonates.

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