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Airbnb IPO Plans Put on Pause

Written by Monica Savaglia
Posted May 5, 2020

Before coronavirus, Airbnb was expected to be this year’s biggest initial public offering (IPO).

It was going to be the IPO that launched one of the IPO market's most robust years. Of course, that was before the coronavirus. Now, an IPO from Airbnb could be put on hold while it focuses on its business model, helps some of its hosts, and assures the public that the company’s main concern is guests’ health and well-being. 

Airbnb had been expecting a valuation of $31 billion, which it ended up lowering to $26 billion last month. Now with no idea how severely the hospitality and tourism industry will be impacted by COVID-19 (and for how long), those plans are on the backburner. 

However, this week, Airbnb announced a $1 billion funding round from new investors: Silver Lake and Sixth Street Partners. It said that it plans to use $5 million of that funding for its Superhost Relief Fund, which was created to help the company’s top hosts pay their rents and mortgages during this pandemic. Airbnb’s co-founders have dug into their own pockets to contribute $9 million to this fund. Its employees have donated $1 million.

Airbnb homeowners are uneasy about the future of their income and how they will be able to make their next mortgage payments. An Airbnb host in Hampton Roads, Virginia, said in a recent interview, “It’s a worrying time. There will be a lot of shifts and some people that depend on Airbnb income may not make it.” Airbnb is using its fund to help as much as it possibly can, making sure to keep those accommodations in business once the public feels confident about traveling and staying in a shared space. 

As of Right Now, the Future of Hospitality Looks Bleak

The hospitality industry as a whole is suffering. According to the American Hotel and Lodging Association, 70% of hotel employees have been laid off or furloughed, and hotels are on track to lose more than $500 million in revenue per day. 

There has been a glimmer of hope for businesses like Airbnb. According to AirDNA, Airbnb and other short-term rental websites have seen an increase in rural rentals as city residents have fled urban areas.

Still, losses could continue for a few months until there is some idea of the likelihood of the industry bouncing back to its pre-coronavirus revenue. It’s going to take some time for people to really get back to normal and feel safe to start traveling again despite any precautions set in place. Even when there is a vaccine, it'll most likely take time to get distributed to all of the public. 

Until then, people continue to cancel their reservations. According to The Wall Street Journal, in February, when China was experiencing the peak of its COVID-19 outbreak, Airbnb's booking volume plunged by as much as 80%. Losses from these cancellations in major travel destinations have resulted in millions in losses this year for the company. 

It's Time to Re-Evaluate

Bloomberg has reported that Airbnb could very well push back its IPO plans to 2021. A delay would not be ideal for Airbnb's employees since their stock options expire this year, and they'll miss the chance to cash out. 

In a public statement, Airbnb’s spokesman, Nick Papas, said:

The coronavirus outbreak is causing travel restrictions and other disruptions that have a direct impact on the travel and tourism sector and beyond. 

Although nobody can know the extent of the impact that the coronavirus outbreak may have, we believe that history shows that when global disruptions happen, the travel industry has bounced back in the long run.

I think what’s important to keep in mind is that the travel industry will bounce back. Yes, there will be a period when we’ll see lower than usual revenues and expectations may be lowered to stay in line with the environment, but people will return to traveling. They’ll want to go to different countries and will need a place to stay. 

There just will be different standards and procedures to follow to ensure travelers’ safety and health. Travelers will be more cautious about everything — and that's not a bad thing. 

Airbnb’s CEO and co-founder said in a statement:

I deeply appreciate the confidence and trust that so many have shown in our company even as every sector in travel is going through the storm of the pandemic. All of the actions we have taken over the last several weeks assure that Airbnb will emerge from the storm of the pandemic even stronger, regardless of how long the storm lasts.

If businesses like Airbnb come out of all this and try to return to things as they were before the pandemic, then their businesses won't survive. This virus has exposed the weaknesses inherent to certain business models.

It’s a lesson and a way to become stronger if those businesses make the effort.

Until next time,

Monica Savaglia Signature Park Avenue Digest

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.

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