U.S. Markets open in 4 hrs 23 mins

Propelled By Snapchat, Airbnb Could Be the Biggest IPO of 2017

Madeleine Johnson

Founded in 2008 by Brian Chesky, Joe Gebbia, and Nathan Blecharczyk, Airbnb is an app and website that connects people seeking lodging with renters who have listed their personal houses, apartments, guest rooms, etc., on either platform. Travelers can book accommodations around the world online or from a tablet or mobile phone.

Airbnb is an easy way for people to monetize any extra living space they have. With over 3 million listings worldwide—including 1,400 castles—it operates in over 65,000 cities and 191 countries, the company has a total guest list of more than 150 million people.

Airbnb as a Lifestyle

Back in 2014, Airbnb announced a huge, company-wide rebranding, indicating a desire to transition from a hotel service to a lifestyle brand. Since its inception, it has been easy to categorize the company as just another hotel option, taking on big industry names like Wyndham WYN, Hyatt H, Hilton Worldwide HLT, and InterContinental Hotels IHG.

But its brand upheaval demonstrates how Airbnb has the potential to be something much more. In a blog post, the company stated they want to possess a logo that will be seen on a variety of products, houses, and businesses, to make sure people understand that whoever owns it is a supporter of their ideal—but, more importantly, a supporter of their brand.

Dubbed Bélo, its logo is a symbol of belonging. While it may look like a misshapen paperclip, Bélo is a “symbol for people who want to welcome into their home new experiences, new cultures, and new conversations.” Airbnb has also redesigned its website and app, which are now far cleaner than previous versions, and feature subtle animations and flashier imagery.

Controversies to Consider

Airbnb may present a legitimate challenge to the hotel industry, but the company is enveloped by controversy and regulatory issues in cities that are none too pleased with residents turning their homes into hotels, reflecting similar problems that plague companies like Uber.

In San Francisco, critics have blamed Airbnb for the growing vacancy rates and the over $3,900 average monthly rent. Average home prices in the city hit the $1.1 million median mark not too long ago, and San Francisco’s population has reached an all-time high (according to Paragon Real Estate Group).

Despite the absence of a permit, which, according to law, one must have in order to rent for under 30 days, San Francisco residents are still illegally listing personal homes and apartments for less than the required number of days on Airbnb. Legislation was approved in San Francisco last June that would require anyone listing available property on Airbnb or other sites to register the property with the city, most likely hindering a person’s ability to casually list a spare room for some extra cash going forward

The company is also embroiled in a long-standing battle with New York City, where they face similar issues as in San Francisco. Last fall, the New York State Senate passed a bill that makes online apartment listings for stays shorter than 30 days illegal, which, not surprisingly, thwarts Airbnb in their goal to expand its market.

Shortly after, Gov. Andrew Cuomo signed that bill into law, with politicians, local hoteliers, and affordable housing advocates hailing the decision as a victory. Some have calculated that the law has deleted roughly half of Airbnb listings in New York. “To avoid fees, hosts in large apartment buildings can only rent rooms or beds in their houses, not their entire apartment,” notes Travel + Leisure, while hosts who rent entire homes or row houses will not be affected.

But Airbnb’s biggest challenge may have been dealing with the #AirbnbWhileBlack controversy, which was a recent protest movement against multiple instances of the company’s hosts apparently declining guests due to skin color. Airbnb siad at the time it was trying to tackle the problem by educating hosts and guests, and by responding to concerns they raise.

Commenting at the 2016 Fortune Brainstorm Tech conference, CEO Brian Chesky said that “We were so focused on creating trust and safety that we took our eye off the ball on this other important issue,” Chesky said. “There were lots of things we didn’t think about when we, as three white guys, designed the platform.”

IPO Buzz

Since 2014, and regardless of its fight with certain cities, rumors have been swirling of Airbnb’s inevitable initial public offering, even though CEO Chesky said no to an IPO at that time. In an interview with the Wall Street Journal, Chesky said that “we will do it at a time when it benefits the company, when we have a good reason.”

Airbnb’s last valuation clocked in at $30 billion—it’s worth only about $4 billion less than Marriot MAR—thanks to its latest round of equity funding, making it the second most valuable U.S. startup behind Uber. This, as well as being a recognized name in the hotel industry and increasingly popular “sharing economy,” is helping raise buzz. Their popularity among venture capitalists (VCs) is helping increase hype, too.

However, this new round of funding, in addition to a separate deal where investors are planning to buy $200 million in stock from Airbnb employees, could be seen as a move to relieve some of the pressure of filing for an IPO. Airbnb is adding significantly to its amount of available cash, allowing it to spend enough and continue its global expansion without going public.

And then there’s Snap SNAP. Snapchat’s parent company’s very successful IPO could have opened a window for other tech startups to make their market debut. Shares of SNAP are up over 50% from its offering price, with investors clamoring to get a piece of the extremely popular company, despite the fact that Snap has yet to make a profit.

In contrast, Airbnb posted its first profit in the second half of 2016, according to a Bloomberg report, and the company expects to maintain it through this year. Revenue at Airbnb grew more than 80% last year, notes Bloomberg.

How Might an Airbnb IPO Perform?

Now, the spotlight is back on tech startups like Uber, but it’s also shining with renewed intensity on Airbnb, and investors are wondering if the online hospitality marketplace will file for an IPO this year.

Like other tech startups, Airbnb is a company for the digital age, and many are wanting to be the first ones to invest in its expected success. Billions of dollars have been invested in the digital sharing economy over the past few years—specifically, in companies whose platforms are apps and websites that connect a person selling an item or service with a consumer who wants to use that item or service.

Particularly, Airbnb is popular because it is inexpensive to run; it doesn’t have to build or maintain hotels or hotel staff. The company is also easy to grow quickly, as there is no need for a physical office in every country, just consumers with a smartphone.

Like any tech startup, Airbnb’s IPO will be a toss-up. Its tentative valuation of $30 billion is impressive in and of itself, and will most likely be the driving factor for investors come time for a public entrance into the market. Airbnb needs to keep an eye on their increasing competition. Companies like Roomorama, Homeaway, and the Expedia EXPE-owned Housetrip all have a dedicated following of their own, and are all beginning to eat into the market share.

Despite rival companies and regulatory issues, Airbnb has the potential to be one of the hottest upcoming IPOs. With billions of dollars in investments already, a thriving rebranding, and its rising popularity among travelers, Airbnb’s IPO is one to watch out for.

Now That Snapchat is Public, Which Tech Giant Could IPO Next?

You may be curious about the buzz surrounding Snap’s IPO, but should you buy up this tech stock? In the 2017 IPO Watch List, you'll get an inside look at Snap's exciting prospects and potential challenges.

You'll also learn about 4 other exciting tech companies with jaw-dropping growth. Each could go public in the coming months. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the latest scoop. Download this IPO Watch List today for free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Expedia, Inc. (EXPE): Free Stock Analysis Report
 
Wyndham Worldwide Corp (WYN): Free Stock Analysis Report
 
Marriott International (MAR): Free Stock Analysis Report
 
Intercontinental Hotels Group (IHG): Free Stock Analysis Report
 
Hyatt Hotels Corporation (H): Free Stock Analysis Report
 
Hilton Worldwide Holdings Inc. (HLT): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research