Room at the Inn: Airbnb celebrates this Christmas following its IPO launch

January 2, 2021

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3 min read

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What's going on here?

Having delayed its stock market debut, Airbnb launched their IPO this month and shares more than doubled, bringing the valuation to over $100bn.

What does this mean?

When Airbnb launched on the Nasdaq stock exchange on December 10th it valued shares at $68, but by the end of the day were trading at $150 a share. This follows a year of success for the US stock markets which has raised over $140bn, the most it has seen since the $107bn of the 1999 dotcom boom. Employees are now able to sell 15% of the shares that they were gifted before they expire this year, which is set to make more millionaires.

The reason for this success is arguably Airbnb’s response to the Covid19 pandemic. Bookings originally fell to 28m from 84m the previous year, though it bounced back in the third quarter, making $8bn. This was attributed to travel redistribution, whereby bookings within 200 miles of the customer have increased, reflecting the move to staycations in response to shielding rules, suggesting that business will thrive when the pandemic is over as it has welcomed more customers and changed the way we holiday.

What's the big picture effect?

In response to the pandemic, Airbnb cut its workforce by about 25% and reduced spending on marketing as well as stripping the company of some of the expansion it had been investing in, such as flights. Adding the $2bn it borrowed in response to Covid, Airbnb is arguably in a better position to deal with the pressures of the pandemic and has a better chance of coming out of it in a strong position; retaining its market dominance. Though it is worth noting that these are convertible debts which will allow them to be exchanged for shares. However, this will dilute the percentage of the company for any other shareholders. It’s important to note that things had slowed down for Airbnb before the pandemic. One must ask how long will this new way of vacationing last. How will the vaccine change the attitude of holidayers when they have the confidence to return to luxury resorts. A combination of these factors will leave Airbnb in a less than ideal position.

 Another issue created by the platform is that people are now buying properties with the sole intention to list on Airbnb. This is adding to Britain’s housing crisis with insufficient affordable housing and not enough authority housing. This in turn causes problems for Airbnb, as local authorities impose new regulations. In its prospectus, the firm explained that 70% of the top 200 cities it operates in had imposed restrictions that affected considerations like how many days a residential property can be rented. This indicates that the company’s future will see fewer listings and have a knock-on effect not only on profit but also on the cost of bureaucracy. Given that Airbnb has already suffered from the highly publicised problems with false listings and scams, these costs are likely to increase.

 On balance one can see why Airbnb shares are considered so valuable, despite the barriers they face regarding new regulations. Covid has hit hospitality hard but the private nature of Airbnb’s services has allowed them to avoid the majority of this. All that remains to be seen is whether this new way of life will continue when the pandemic is over.

Report written by Lauren Kent

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