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Is Airbnb’s Stock Market Debut in 2020 Still On Track?

Dennis Schaal, Skift
Is Airbnb’s Stock Market Debut in 2020 Still On Track?

Did Airbnb’s hopes of going public in 2020 just become way more complicated?

That question seems valid now after Airbnb’s financial results reportedly swung from a profit a year earlier to a $322 million loss during the first nine months of 2019.

A Wall Street Journal report Tuesday raised doubts about that scenario with news that from January through September in 2019 Airbnb notched a $322 million net loss compared with a $200 million profit for the first nine months of 2018. The Journal obtained the information from what it said were sources close the company.

But a source familiar with the short-term rental giant’s thinking said its plans to go public haven’t changed, and that Airbnb still intends to secure its stock market symbol, and start trading on an exchange this year.

Looking at just the third quarter, rising costs lowered Airbnb’s profits 29.4 percent to $266 million, according to the report. Revenue in the third quarter rose roughly 30 percent to $1.65 billion.

Given the fallout from Softbank’s 2019 WeWork debacle, which saw its potential initial public offering withdrawn and its valuation plummet, plus Uber’s ongoing losses, and the coronavirus showing global financial impact, this year may not be the best time for a company without profits to go public.

Airbnb declined to comment for this story.

It’s Not Game Over

But several analysts and investors Skift spoke with opined that the report about the net loss during the first nine months of 2019 hasn’t necessarily torpedoed Airbnb’s prospects of going public this year.

“It raises some eyebrows, but i’m not sure being unprofitable will have as big an impact on the prospect of Airbnb going public as it did for other recent tech listings,” said Seth Borko, senior research analyst at Skift Research.

While WeWork had never turned a profit and still isn’t close, Airbnb showed that it could be EBITDA (earnings before interest, taxes, depreciation and amortization) profitable in the past, and has plenty of cash on hand, Borko said. Airbnb’s balance sheet reportedly is buffed up by $3 billion in cash.

“I think about Amazon, which was unprofitable for many years but was able to tell investors a story about its intrinsically high-margin cloud business, and successfully argued they could turn on that profit tap whenever they chose to but were making a conscious decision to re-invest in growth,” Borko said. “I could see Airbnb trying to sell investors on a similar story despite being unprofitable in the moment.”

Of course, while Uber racked up a net loss of around $8.5 billion in 2019, Airbnb’s net loss for the first nine months of last year paled in comparison at just $322 million.

One of the problems about assessing Airbnb’s operations is that it is still a private company, and there was little visibility in the Wall Street Journal report about precisely where Airbnb was spending money on expenses.

Where Are the Expenses Going?

By all accounts, in China, where coronavirus is most prevalent, Airbnb’s business there is not material to its overall financial results.

Dan Wasiolek, senior equity analyst at Morningstar, said investors would likely look past the negatives of coronavirus in terms of Airbnb’s prospects for going public.

“Investments into upgrading technology, or extending into supply verticals like experiences and boutique hotels, would probably be viewed as an OK reason for near-term losses, with the thought that it supports the company’s network advantage long-term,” Wasiolek said. “But if the main driver is regulatory and safety cost increases, that is more concerning, as those are more specific to Airbnb versus peers.”

He said it is difficult to assess how much investment Airbnb needs in the regulatory and safety arenas. “The Airbnb founders have some history of not getting in front of regulation and safety, as cited in books like The Airbnb Story, so if that is the case here, that stands as a black mark on the executive team.”

The Devil Is In the Details

A prominent investor said he doesn’t believe Airbnb’s chances for going public in 2020 have meaningfully declined.

“Casper has shown us that there’s still a market for companies that burn cash and have no clear sustainable competitive advantage,” the investor said. “Airbnb certainly has a lot more going for it than Casper.”

“There likely are some non-cash charges in that net income figure that make it look worse than it really is,” the investor said. “Also, you’re looking at last year’s results, and this year could be different. Perhaps Airbnb was ramping spend to drive good top-line growth thinking that the IPO market cares more about the top line than the bottom line. Then after WeWork, perhaps they decided to shift gears to focus more on profitability. Who knows? The devil is in the details, and I don’t have any.”

Then, of course, when a company goes public, there is the vital issue of at what valuation it does so. Airbnb was valued at $31 billion in 2017 when it last went to the funding well.

“On the other hand $31 billion seems a high hurdle to clear if revenues are running at around $5 billion and cash flow is negative,” the investor said. “Of course, we don’t know how negative the cash flow is.”

About Airbnb’s stock market prospects for 2020, the investor put the question into perspective.

“After all,” he said, “it’s only February.”

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