Bunking with the Public: AirBnB announces it will make an IPO as it plans to go public
October 1, 2019
2 min read
What's going on here?
AirBnB, the home-sharing rental business, has announced that it will go public next year.
What does this mean?
The announcement of an initial public offering (IPO) follows growing discontent amongst AirBnB employees towards their inability to sell the start-up’s shares. These employees received company stock as part of their compensation packages, but have found it difficult to sell these shares for cash while the company remains private.
What's the big picture effect?
AirBnB’s announcement closely follows WeWork shelving its IPO in response to lacking investor interest. Increasing regulation and profitability concerns have also adversely affected the IPOs of Uber and Lyft, and most recently, exercise equipment maker Peloton’s shares fell by 15% after its stock market debut. In light of these recent trends, it will be interesting to see if AirBnB will adopt any strategies to mitigate a sharp fall in their share prices.
These failures in the IPO markets accompany a contraction in capital markets, as the number of public companies have shrunk in recent years. In contrast, private financing has become more widely available and more popular, with the number of private equity-backed companies at a record high. One reason for this shift could be that public companies are subject to onerous disclosure requirements, and in a time where social responsibility is increasingly important, companies may be placed under extremely high pressure to demonstrate how values, such as diversity and sustainable investing, are incorporated in their corporate strategy.
The decline in public financing is concerning, as public markets play an important role in allowing individuals to participate in wealth creation. As illustrated by AirBnB’s employees, stock in private companies are harder to trade, and this affects these individuals’ ability to cash in their compensation. Stock option plans are a popular method of compensating employees of early start-ups. This is because they attract, motivate, and retain employees by allowing them to share in the company’s future success when the company cannot afford to pay them high salaries yet.
Thus, a decline in IPOs will affect employees’ ability to cash in their stock, and the discontent expressed by AirBnB employees may become a wider issue for growing start-ups.
Report written by Rachel Tay
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