The weather is finally turning cold, but on Wall Street one of the hottest initial public offerings (IPOs) is only just now arriving: Airbnb.
The short-term rental giant’s IPO has been anticipated for a long time, with that anticipation ramping up in August when the company revealed it had filed paperwork to go public. But according to a report from Reuters, the company now plans to make its IPO registration public sometime this week, which would set it up for a December debut on the Nasdaq.
At this point, additional details about the IPO are sparse — we don’t know what shares might end up costing, for example — though reports from October indicated the company hopes to raise $3 billion by selling shares. If successful, that would value the company at about $30 billion.
Airbnb did not respond to Inman’s request for comment Monday.
The IPO is big news for the Wall Street set, but it’s also significant for the housing, real estate and rental industries. These worlds have long overlapped, with large numbers of vacation rentals in places like beach towns and mountain resorts. However, Airbnb allowed ordinary property owners to tap into global demand for vacation rentals. Suddenly it was possible to do short-term rentals in just about any location.
The result has been a steadily growing number of homes available to rent by the night, week or month. Indeed, analytics company AirDNA has reported that rentals on Airbnb and rival platform Vrbo have “increased by 105 percent over the past three years propelled by a new wave of travelers looking for more unique and affordable hotel alternatives.”
“U.S. real estate investors both big and small have jumped into this new asset class purchasing 1.8 million properties with the intent to earn short-term rental revenue in 2018 alone,” AirDNA has also reported.
A successful Airbnb IPO, then, would represent a bet on the part of investors that short-term rentals will continue to gobble up more of the real estate market. And it’d be a bet that the future of travel lies not just with big names like Marriott and Hilton, but also in the hands of small-time operators who use third parties to connect with consumers.
Not every company has a successful IPO. Well-known companies such as Uber and Snap both had early stumbles, and food startup Blue Apron’s stock market debut turned out to be a disaster. Airbnb may well avoid the pitfalls of those other companies — its business has seen a resurgence lately — but there are still several key issues to keep in mind on the eve of its IPO. Here are a few of them:
The coronavirus pandemic
Though Airbnb has had a meteoric rise, the coronavirus pandemic was certainly a bump in the road. Co-founder and CEO Brian Chesky has said that the outbreak meant “travel came to a standstill” early on, and in the fallout the company laid off nearly 1,900 people, stretched its refund window and scaled back some of its programs.
However in the months since, the situation has improved.
Though AirDNA reports that active short-term rental properties in the U.S. continued to trend downward through August, new bookings over the summer were actually up from their low point in May.
By July, Airbnb had ultimately seen a 22 percent year-over-year increase in consumer spending, with many users preferring longer stays. By September rental operators told Inman bookings were flooding in.
Airbnb itself has also revealed that more than 200,000 new hosts began using the platform to rent out their properties during the pandemic, and noted that there appears to be growing interest from remote workers who want to temporarily relocate to new areas. The company further believes that travel will change in 2021, with more interest in “staycations” and telecommuting.
The takeaway here is that much like the real estate industry more broadly, the pandemic doesn’t appear to be sinking Airbnb. Its business is certainly evolving, and at a glance a pandemic-driven recession may seem like an odd time for an IPO. But the company at least believes that it is “suited to meet these changing needs.”
Regulation and competition
There are a few other caveats going into Airbnb’s IPO as well. Second probably only to the coronavirus pandemic is the prospect of regulation eating into the company’s business. For example, Los Angeles in recent years has steadily cracked down on short-term rentals, showing that aggressive municipalities are willing to take on the company.
There have been fewer major regulatory battles during the pandemic (though parties have still been a point of conflict). But the underlying issue that drove more regulation was a general housing supply shortage, which made homes more expensive for permanent residents and fueled resentment toward short-term rentals. And significantly, inventory of available homes has fallen during the pandemic while prices have risen.
All of which is to say, the conditions that previously led to short-term rental regulation still very much exist. How that plays out in the future remains to be seen, but it’s conceivable that it could impact Airbnb’s business in the future, as well as that of the property owners and real estate professionals who rely on the platform.
There’s also the question of competition. Airbnb is unequivocally the dominant player in the short-term rental game, much in the same way that Uber dominates ride hailing even though there are other providers such as Lyft.
But travel booking company Expedia has been coming for Airbnb’s lunch for a while now. Most importantly, Expedia owns Vrbo, which it picked up via an acquisition of HomeAway in 2015. Vrbo is probably the most significant competitor for Airbnb — the Lyft to Airbnb’s Uber — and Expedia is one of the few companies that has the resources and clout to take on its rivals.
Expedia has also indicated its desire to make headway in the short-term market by acquiring smaller startups.
Finally, there are other companies such as management firm Vacasa, which use Airbnb for bookings and have a symbiotic relationship with the company, but which are fairly platform agnostic. Vacasa, for example, posts its listings in multiple locations, as well as on its own website.
This means that while Airbnb has a significant head start, it doesn’t necessarily mean that it’ll always have an edge over the competition.
On the other hand, all this competition is probably a good news for real estate pros and property owners; it means they’ll have more options for finding customers, and it suggests a high degree of optimism that short-term rentals are here to stay.