Everything you need to know about Airbnb’s IPO

Airbnb's Financials

Back in the halcyon days of 2019, Airbnb's numbers were huge. Customers booked almost $38 billion of nights and experiences on the platform, bringing in $4.8 billion in revenue. The company still lost $674 million though, thanks in part to hefty sales and marketing costs.

The pandemic has been awful for Airbnb. Its revenue started to decline in March, before plunging in April, when bookings were down 72% year-over-year. Things recovered a bit over the summer, but bookings are still down. The collapse in demand has seriously affected Airbnb's financials.

• In the first nine months of 2020, the company made just $2.5 billion in revenue, down 32% from the same period a year earlier.
• The company's net loss more than doubled too, from nearly $323 million in the first nine months of 2019 to almost $700 million this year. That's despite intense cost-cutting, which included 1,900 layoffs.

But it's not all bad. In the third quarter of 2020, the company made a profit of $219 million, not much smaller than the nearly $267 million profit it made in Q3 2019. (Q3 is always a good period for the company, as it's the busiest travel season in the U.S. and Europe, and this year lockdown restrictions were less stringent in many places over the summer.)

• The company also has more than enough cash on hand to weather the storm: $4.5 billion, to be precise, up from $3 billion at the start of this year, thanks in part to a rapid fundraising spree in April.
• The business is remarkably diversified, too: No single city accounts for more than 2.5% of Airbnb's revenue, and last year 63% of its revenue came from hosts outside the U.S. (That number is smaller this year, likely due to less international and more domestic travel.)

What Could Go Wrong?

Airbnb's risk factors are dominated by three themes: COVID-19, regulation and competition.

The pandemic devastated Airbnb's business in the first part of this year. And while summer offered some respite, the company thinks things will get worse before they get better thanks to a new wave of infections in Europe and the U.S.

• There could be long-lasting effects, too. "We cannot predict if and when demand will return to pre-COVID-19 levels," the company says. It cites the impact of economic downturns on depressing travel spend, and suggests that it could be affected by some hosts losing their homes or businesses as a result of the pandemic. "We believe a number of our hosts are individuals who rely on the additional income generated from our platform to pay their living expenses or mortgages," it says.
• Still, there could be some tailwinds. "Just as when Airbnb started during the Great Recession of 2008, we believe that people will continue to turn to hosting to earn extra income," the company argues. It also notes that work-from-anywhere practices could boost its long-stay business, too.

The other big problem is regulation. "We are subject to a wide variety of complex, evolving, and sometimes inconsistent and ambiguous laws and regulations," the company says. And it truly is a wide variety: Short-term rental laws, tax regulation, financial regulation, GDPR and even Section 230 all crop up as potential issues for the platform.

• Some are particularly worrying. Airbnb thinks new legislation in New York City requiring it to share host data with authorities could "substantially' reduce its revenue as hosts flee the platform. Given that NYC accounted for approximately 2% of Airbnb's revenue last year, that could have a big impact.
• The company's also involved in an odd tax dispute about the transfer of some intellectual property. It says that in September the IRS wrote to the company, proposing "an increase to our U.S. taxable income that could result in additional income tax expense and cash tax liability of $1.35 billion, plus penalties and interest." Airbnb seeks to challenge the proposal; if it fails, the consequences are significant.
• Regarding payments, Airbnb says it received a "cautionary letter" from the Office of Foreign Assets Control concerning its operations in Crimea, where it may not have fully complied with U.S. sanctions laws. OFAC is also investigating Airbnb's practices in Cuba, which could lead to "potentially significant monetary civil penalties and litigation."

And then there's Google. Of all Airbnb's competitors, the search engine gets the most discussion in its S-1, revealing some quite intense animosity.

• "We believe that our SEO results have been adversely affected by the launch of Google Travel and Google Vacation Rental Ads," Airbnb says, noting that Google could promote its own products at Airbnb's expense.
• The company's worried about mobile, too: "If Google or Apple use their own mobile operating systems or app distribution channels to favor their own or other preferred travel service offerings ... it could materially adversely affect our ability to engage with hosts and guests."

Who Gets Rich?

Airbnb's valuation is an open question still: Though it was valued at $31 billion back in 2017, an April 2020 round valued it at just $18 billion. But even at the latter valuation, some people stand to do very well.

• Sequoia is the company's largest shareholder, with a 16% stake worth almost $2.9 billion at an $18 billion valuation. Founders Fund's smaller stake is worth around $923 million, in comparison. Silver Lake, Sixth Street and DST Global also own stakes.
• CEO Brian Chesky owns around 15% of the company, worth around $2.7 billion at an $18 billion valuation. Nathan Blecharczyk and Joe Gebbia's stakes would be worth around $2.4 billion each.

What People Are Saying

"Very sneakily but not surprisingly, Airbnb is NOT breaking out Experiences revenues or investments." — Skift CEO Rafat Ali suggested that might be because Airbnb's return on investment with experiences is … not great so far.

"Airbnb reports that building a community is their primary differentiating factor." — CMX's David Spinks did the math, and "community" appears 166 times in the S-1.

"Wow! These Airbnb numbers are [terrible]/[incredible]! Brian Chesky is [the next Steve Jobs] / [the wrong person to lead this company]. [Congrats to the @airbnb team! Huge fan!] / [Ooof another overfunded sharing economy dud]" — Packy McCormick had the best take.

Airbnb's Words of Wisdom

It wouldn't be a tech IPO filing without a few ridiculous and nonsensical claims. Fortunately, Airbnb doesn't disappoint:

"We have helped millions of people satisfy a fundamental human need for connection. And it is through this connection that people can experience a greater sense of belonging."

"People are feeling increasingly disconnected in the world, and loneliness is pervading our society. The opposite of loneliness is belonging — the feeling of deep and genuine connection to a person, a place, or community. It's the feeling of being 'at home.' The feeling of being known and loved."

Values: "Be a cereal entrepreneur. Our employees are bold and resourceful. 'Cereal entrepreneur' refers to the time when AirbedandBreakfast.com was struggling to earn revenue, and Brian and Joe decided to sell collectible breakfast cereal during the U.S. presidential election in 2008. They created and sold Obama O's and Cap'n McCain's and earned nearly $30,000, enough to keep Airbnb going."