Assignment
How is airbnb's business adapting to the covid-19 pandemic?
Prior to the pandemic, Airbnb's revenue was rapidly growing, but so were its losses. Its revenue rose from $2.6 billion in 2017, to $3.7 billion in 2018, and $4.8 billion in 2019.
But losses widened from $70 million in 2017 to $674.3 million in 2019. The company had 54 million active customers in 2019 and 247 million guest arrivals. It also said that 84% of its revenue came from customers who had rented on its service within the past year, up from 82% the previous year- showing that the service is getting better at retaining customers.
How did Airbnb fare during the pandemic? The pandemic created a major slowdown in Airbnb's business, but the company seems to have survived the worst of it. During the height of the pandemic, in the second quarter, a large number of cancellations and slow bookings created a massive loss in revenue. Airbnb's $334.78 million in revenue was down 72% year over year. During the same quarter, the company's losses widened to $575.6 million, up from a loss of $297.4 million during the same period the year prior.
In May 2020, Airbnb business went into free fall. With customers hunkering down at home, revenue tumbled 72% year over year and quarterly losses ballooned to $576 million. Airbnb initially responded to the pandemic by cutting costs. It cut 25% of its workforce, reduced marketing expenses, cut 2020 bonuses, and reduced executive salaries for six months.
A few months later, the company said it had started to see customers return for local getaways and for working remotely. As a result, the company reported a $219.3 million third-quarter profit, down from $266.7 million it made during the same period in 2019.
In November 2020, Airbnb has come back from the brink. Mere months after the Covid-19 pandemic caused its bookings to drop over 70% and cut in half its valuation, the company has pulled off a dramatic recovery and is headed toward an IPO with an expected valuation of $30 billion.
Heading into 2020, Airbnb was poised for one of the most anticipated initial public offerings of the year-and a validation for one of the buzziest tech startups of the last decade. The coronavirus changed that. While the pandemic has been terrible for Airbnb in many respects, the company has done well compared with airlines, hotel brands, cruise lines, and most other parts of the global travel industry. Its revenue fell 18% during the third quarter compared with 2019. That was far better than Marriott International Inc., which reported a 57% drop in sales, and online travel agency Expedia Group Inc., whose revenue declined 58%.
Airbnb filed to go public on Nov. 16 and is seeking to raise $2.6 billion in an offering that could value the company at almost $35 billion. That's up from a 2017 funding deal that valued Airbnb at $31 billion-and a significant recovery from the $18 billion valuation it drew in April when it raised debt to help ride out the pandemic.
Investors were evaluating a business that looks much different than it did a year ago. Gross bookings in Airbnb's top 20 cities fell by half in September compared with the year before, while bookings outside those major markets were down 19%, the company said in its S-1 filing. International stays declined by roughly two-thirds, and travelers taking lodgings less than 50 miles from their homes constituted the fastest-growing part of the business.
While it may be right to say that Airbnb is evolving, it is also safe to say that the company has never fit into existing categories. Silicon Valley claims it as a tech startup, one of the shining stars of a sector once referred to as the sharing economy. Hotel chains see it as a threat while dismissing it as an online travel agency, or OTA, akin to Expedia Group Inc. or Booking Holdings Inc., which connect vacationers on one side of the platform with lodging owners on the other. While that comparison is apt in some ways, Airbnb exists in its current form because it has created a whole new travel category, transforming the activity of crashing in other people's homes into a millennial-friendly alternative to hotels that either seemed too boring or were too expensive. For customers, it's an alternative to Marriott, not Priceline.com.
The company is outshining OTAs and hotel companies during the pandemic, both of which it listed as competitors in its IPO filing. Unlike other OTAs, Airbnb doesn't book flights, and it doesn't need business travel or big conventions as much as traditional hotels do. All this left it less exposed to the specific shape of pandemic-era weakness in travel. When Covid-19 turned hotel (and apartment building) lobbies and elevators into worrisome zones of potential infection, the company played up its ability to offer isolated destinations and prodded hosts to offer discounts to customers booking longer-term stays.
The part of the travel industry Airbnb most resembles right now may be budget hotels. Choice Hotels International Inc., which franchises brands such as Comfort Inn and Econo Lodge, has also benefited as families canceled flights and took road trips instead. Many motels let guests enter rooms from the parking lot, bypassing common areas. Choice's revenue fell 31% for the first nine months of the year, right in line with Airbnb over the same period.
The company also shares one of the primary problems cheap hotels face: crime. Roadside motels have persistent issues with drug dealing and prostitution; Airbnb's "party house" problem has led to lawsuits blaming it for its role in shootings, other crimes, and the spread of Covid-19. The company declined to comment but has recently highlighted measures it's taking to make its platform safer.
Airbnb's strength may be that it can morph into a kind of artisanal Econo Lodge, offering value lodging for car vacations when that's where the demand is. When it comes time to return to cities, it may find the competitive landscape changed. Many markets it relied on pre-pandemic, including Amsterdam, Barcelona, and New York, have sought to increase regulation on short-term rentals, and property owners may convert some units to permanent housing.
"I'm typically super-optimistic about Airbnb because they're so agile," says Scott Shatford, chief executive officer of AirDNA, a company that collects data on the short-term rental market. "But the urban recovery isn't going to be the slingshot, V-shaped recovery that it was in rural markets. There's going to be so much competition from hotels, and they're going to have to battle for guests on rates."
Airbnb's long-awaited debut as a publicly traded company happened on December 9, 2020, following a tumultuous year in which its home rental service's business was hit hard by the coronavirus pandemic. The company, led by CEO and cofounder Brian Chesky, confidentially filed for its IPO in August, just three months after cutting 2,000 employees as a result of a pandemic-related slowdown in rentals. But while recent documents filed with the Securities and Exchange Commission show just how much Airbnb's business was impacted, it also showed some recovery.
Here are some key things to know about Airbnb's IPO.
When was Airbnb's IPO?
Airbnb's IPO took place on Dec. 9, and its shares began trading on Dec. 10. The company had initially announced its plans to go public in September, following a number of big debuts by tech companies like Zoom, Pinterest, Uber, Lyft.
What were the IPO shares priced at?
Airbnb began selling 50 million shares at a reported price of $68 each, valuing the company at $47 billion. That's up from the price range it had previously set of $56 to $60, which would've valued the company at up to $42 billion. Based on strong investor appetite, the company raised the initial price range of $44 to $50.
When Airbnb's stock debuted on the Nasdaq, it was at $148 per share and then jumped to $160-representing a 135% increase from its IPO. That gives the company a valuation of $100 billion.
In August 2021, however, Airbnb reported its too-good-to-be-true quarterly earnings. Unfortunately for the travel industry, Airbnb's financial crystal ball looks hazy thanks to the COVID-19 Delta variant. Indeed, Wall Street has been punishing Airbnb over the past few days even after the online rental company reported jaw-dropping results, including a 300% year-over-year increase of sales to $1.34 billion. During a call with analysts, CEO Brian Chesky doubled down on the company's sales growth, projecting that the company's next quarter will be "our strongest revenue quarter ever," which "speaks to the inherent resiliency of our business."
Investors, however, were spooked by what Airbnb revealed in a letter to shareholders, in which the company said that the "COVID-19 pandemic creates ongoing uncertainty for our future results." In other words, while people may be traveling into the next quarter, any future vacation or work-travel plans may be put on hold as the Delta variant spreads.
Task
I. Explain Airbnb's business model.
II. How has Airbnb evolved over the years?
III. Why and how was it possible for Airbnb to have a successful IPO during the pandemic? If it has anything to do with investor sentiments, what did Airbnb do right during the pandemic?
IV. What are the challenges ahead for the company?
V. What will be the future of Airbnb?