Is Airbnb profitable?
Airbnb is planning to make a debut on Nasdaq, one of the most anticipated IPOs in the recent
years. But does it have the potential to convert the high anticipations into the astounding
listing?
Airbnb’s business model
Founded in 2008 by Joe Gebbia and Brian Chesky, the company is in the community based online
platform space for listing and renting local homes.
The company has come a long way and has become synonymous to the industry, having over 1.5
million listings in more than 200 countries.
Airbnb works on the “sharing economy” business model which has become one of the
most popular ways to do business. The model has in fact been adopted by giants like Uber,
OYO Rooms, Lyft etc.
What differentiates this space from the conventional online hotel booking platform is one does
not need to be a hotel or a resort owner to rent out his property, even a private flat
would do the job, making it more of a volume play for the company.
Financial Footing
Since the beginning, Airbnb is struggling to make profits. Last year alone, the company
lost $674 million as costs soared to a whopping $5.3 billion.
In first nine months of 2020, the company reported net loss of $697 million, on revenues
of $2.52 billion.
Talking about the valuation, it was not much before when the company was valued between
$50 billion and $70 billion (before the pandemic), the time when exorbitant valuations was a
trend in the Silicon Valley.
However, the recent investment of $1 billion from Silver Lake and Sixth Street Partners
reduced it to $18 billion, down from $26 billion of internal valuation conducted in March 2020.
Notably in the 3rd quarter, although the revenue fell 18% to $1.34 billion, the cost cutting
helped the company to show signs of recovery and report a net
profit of $219 million.
IPO Prospects
In its latest IPO filing, the company cautioned that it expects a larger Y-o-Y booking decline
in the current holiday quarter compared with what it posted in the three months ended in
September.
Being a juggernaut in the space and one of the early movers in the industry, all looked
good in the pre-covid period.
However, what could have been Airbnb’s year with its IPO, has probably become the nightmare
amid dent on international travel and Airbnb’s bookings.
Notably, Airbnb stayed strong on its path to recovery, adopting strategic shift to local
offerings for leisure/work from home stays. Besides, layoffs and other cost-cutting initiatives
were also introduced.
While travel space continues to remain battered, Airbnb is trying to tap the secondary market,
and it would be interesting to see how to the market reacts to the IPO.