The Fate of Airbnb’s IPO: Sink or Float?

Before the late 2000s, Americans on-the-go were booking hotels, flagging down taxi-cabs, and taking meals to-go. Flash forward to the present: the mass popularity of homestay, ride-sharing, and food delivery apps means that ordinary consumers can now provide those same services. Such apps comprise the gig economy, which describes temporary work without traditional benefits from employers such as healthcare insurance and contributions to retirement accounts. 

However, it’s the absence of contracted employees that may be contributing to the slow, potential downfall of the gig economy. On September 18, California passed Assembly Bill 5 (AB5), which will require Uber, DoorDash, Lyft, and other gig-economy companies to reclassify their workers in the state as full employees instead of independent contractors. Despite the current efforts of Uber, Doordash, and Lyft to resist AB5, either by collectively spending $90 million for a ballot-initiative or arguing that they should be exempt because their “technology platforms [are] for several types of marketplaces,” their rate of growth is falling. Ever since Uber and Lyft launched on Wall Street earlier this year, the profitability of gig economy companies appears unstable. Since Lyft went public in April and Uber in May, both companies have reported major revenue losses in the second quarter ($644 million and $5.2 billion, respectively) and over 35% in drops for shares. 

Despite the continued drops in IPO values of its gig-economy tech peers, fellow gig-economy member Airbnb has been steadily preparing to make its own debut in the public market in 2020. The question remains if Airbnb will avoid the same mistakes Uber and Lyft have made since going public. Yet, there are a couple of factors that may indicate that AirBnB’s fate could take a more positive turn.  

First, Airbnb may experience greater confidence from investors if it is able to prove its company’s profitability. In 2017 and 2018, Airbnb reported positive net revenue. In addition, unlike Uber and Lyft’s losses, for the second quarter for 2019, AirBnB stated that it had earned over $1 billion (it is unknown if this figure was profit). If Airbnb can later confirm high profitability for all of 2019, then it can build up investor enthusiasm before going public in order to ensure that trading is made at higher prices than the IPO. 

Airbnb also has a greater likelihood of attracting and retaining a diverse range of investors. Although Uber, Lyft, and other “unicorn companies” have demonstrated unprofitability, Bloomberg reports that for 2019, “unprofitable IPOs are on pace to outperform the market at a higher rate for the fifth straight year.” Such a pattern indicates that investors who like to bet are still expressing confidence that these IPOs will eventually become the “next big thing” in the technology market and generate mega-profit in the long-term. However, Airbnb is also able to entice more cautious investors by demonstrating that it can create long-lasting transformation within its industry. In 2019, Airbnb showed interest in expanding and diversifying its online marketplace by acquiring Urbandoor to better appeal to business travelers and HotelTonight to add hotel listings to its options. With Airbnb making active attempts to adapt to a bigger customer base, it is taking strides to prove that its business model can read the market and anticipate consumer demand better than its tech start-up competitors.  

Second, Airbnb’s rumored methods of posting its IPO differ from Uber and Lyft’s, which can provide some shielding for the company once it goes public, by posting a direct listing instead. A direct listing will save Airbnb several million dollars, as the lack of a traditional IPO will allow for Airbnb to pay a smaller fee percentages to banks and avoid “watering down” its market value. Since direct listings also allow for companies to sell existing private shares on the public market, such a move could allow for Airbnb to generate additional cash ahead of time to act as a security net and gauge investor interest (albeit with some risk) before moving towards a traditional IPO. Smarter pricing of shares, whether they be greater or lower than those predicted by underwriters, should be a strategy that Airbnb pursues. Given the current unpredictability of investor faith in private tech companies hitting the public sphere, Airbnb’s cautious steps with direct listings beforehand may snowball into better payoffs later on. 

If it can prove profitability, attract betting and cautious investors alike, and strategically price its public shares, perhaps Airbnb can be the one successful “unicorn” that saves the day for tech stock.