Home rental startup Airbnb has conceded that it “may not be able to achieve profitability” as it filed its initial public offering (IPO) prospectus ahead of its highly anticipated stock market debut.
Since its launch in 2008 the company has disrupted the hotel industry and grown into a hospitality juggernaut that could see the company float on the Nasdaq with a $30bn valuation.
Despite strong historic revenue growth, Airbnb is yet to report an annual profit since Brian Chesky and Joe Gebbia launched the firm in San Francisco 12 years ago.
The coronavirus pandemic decimated revenues this year as a sharp reduction in global travel proved devastating for its business model, which sees hosts rent out accommodation via the Airbnb app and the company take a cut of each booking.
Despite being ravaged by the pandemic, Airbnb was able to turn a profit in the third quarter of this year following cost-cutting measures. In May it laid off 25% of its workforce and cut marketing spend for the rest of the year. It was also given an emergency $2bn cash injection from private equity.
It has sought to reposition its business for those looking to holiday nearer to their own home. Bookings more than 500 miles from the booker’s home have dropped 48%, while those less than 50 miles away are up 17%.
“The recovery in the second and third quarters of 2020 is attributable to the renewed ability and willingness for guests to travel, the resilience of our hosts, and relative strength of our business model,” Airbnb said.
Regardless, Airbnb is on course to take a huge hit from the pandemic this year. In the first nine months of 2020 the company brought in revenues of $2.5bn, down 32% on the year-ago period.
Between January and 30 September 2020 Airbnb notched up losses of $969.9m, already surpassing the $674.3m losses for the whole of 2019.
The company also expects its revenue growth to continue to slow in the future and lists the ongoing pandemic as a significant threat to its business.
“Any further and continued decline or disruption in the travel and hospitality industries or economic downturn would materially adversely affect our business, results of operations, and financial condition,” Airbnb said in its IPO prospectus.
Airbnb IPO: “Shareholders may find the future a turbulent ride”
However, recent news of promising Covid-19 vaccines may help convince investors that global travel will pick up in 2021 and increase Airbnb revenues.
Airbnb also faces a potentially hefty tax adjustment bill from the IRS for the 2013 tax year, which could “result in additional income tax expense and cash tax liability of $1.35bn plus penalties and interest”.
Professor John Colley, associate dean at Warwick Business School, said: “Despite a couple of very difficult years for Airbnb, there is clearly a concern that the ‘bubble’ might be missed if Airbnb were to wait for better results. Indeed market valuations are a consequence of growth rates rather than any likelihood of consistently making significant profits, ask Uber, Lyft and many others.”
Uber and Lyft both went public last year, but the ride-hailing firms are yet to report a profit. When Uber filed its IPO in May 2019 it also warned investors that it may never be profitable.
Airbnb is hoping to raise around $3bn when it lists next month, with Morgan Stanley and Goldman Sachs Group the lead underwriters for the IPO.
“No doubt the IPO will be a success in view of the current investor appetite and the fact that Airbnb is nearer to profit than many recent and current IPOs,” added Colley.
“However, shareholders may well find the future a turbulent ride.”