Airbnb Salvaged Its IPO by Mastering the Pandemic Pivot
The company’s ability to adapt to Covid—and meet customers where they wanted to go—may have saved its stock market launch.
By Patrick Clark
Bloomberg
December 2, 2020, 5:00 AM CST
Jeff Iloulian runs a property management firm in addition to HostGPO, a company that caters to hosts of vacation rentals. “The demand moved around, it didn’t vanish,” he says. PHOTOGRAPHER: DAMON CASAREZ FOR BLOOMBERG BUSINESSWEEK
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Jeff Iloulian braced for his business to crash when the Covid-19 pandemic set in this spring. Iloulian runs HostGPO, a company that helps owners who rent property through Airbnb and similar platforms negotiate discounts on household products and furnishings. His clients suddenly had so few guests in lucrative urban markets that some hired movers to haul furniture from downtown apartments to nearby warehouses.
This would have been a disaster for HostGPO, except that those same property managers were doing big business in rural markets, and they began hunting for real estate in places not known as vacation hotbeds: Lake Arrowhead in addition to Lake Tahoe, eastern Pennsylvania as well as the Hamptons. “People are buying expensive furniture in the Poconos right now,” says Iloulian. “The demand moved around, it didn’t vanish.”
The shifting geography of Iloulian’s business helped save his year. It also saved Airbnb, the short-term rental platform that most of his clients rely on for many of their customers. 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%.
In fact, the third quarter was Airbnb’s most successful to date by some financial measures. To some extent that’s a result of drastic spending cuts. The company fired 1,800 workers, about a quarter of its total; canceled marketing efforts; and curtailed plans to expand into new lines of business. But its relative resilience in an historically bad year for the travel industry is also a result of a flexible business model that allowed the company to meet customers in the places they wanted to go.
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 will be 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.
Airbnb 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.”
BOTTOM LINE - Airbnb’s business has shrunk during the pandemic, but thanks to a flexible business model it’s in far better shape than many competitors.
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