airbnb files to go public

Airbnb submitted its initial public offering documents today, marking a significant advancement toward becoming a publicly traded organization.

The reported financials demonstrate a recovering business, although currently operating at a reduced scale. A detailed review of the financial data also highlights the substantial impact the pandemic had on the travel-dependent company. When assessing Airbnb’s valuation, stakeholders must weigh the company’s current profitability and its potential for future growth against its previously established trajectory, which was negatively affected by recent disruptions.

How did we get here?

The short-term rental company experienced a challenging year, as the COVID-19 pandemic negatively impacted its operations during the first half of the year, followed by a rebound driven by an increase in bookings within closer proximity to travelers’ homes.

This announcement follows shortly after similar actions by other privately held companies, DoorDash and C3.ai, who recently submitted their own initial public offering paperwork, potentially indicating a surge of highly-valued startups seeking to become publicly traded.

Airbnb’s S-1 submission was anticipated the previous week, but was postponed reportedly due to worries surrounding the election, a rationale that the TechCrunch team found somewhat questionable.

We have gathered a significant amount of information regarding Airbnb’s recent financial results, but the S-1 document provides the most comprehensive data. The following is an examination of the company’s key financial figures. TechCrunch will subsequently analyze the more detailed aspects of the company’s finances and equity structure.

Airbnb’s financial performance

Our focus is to understand the effects of the pandemic on Airbnb’s business, examining its performance up to the present and analyzing trends from its quarterly reports.

Airbnb’s S-1 filing includes a chart illustrating monthly bookings on its platform. This appears to directly address the questions investors have, and the company proactively chose to share this data. Here are the figures:

As anticipated, Airbnb experienced a substantial decrease in bookings during March. However, by May, the company had returned to year-over-year growth, a trend that continued.

Since June, the company has experienced limited growth in bookings, with a decline observed in subsequent months. Furthermore, the company’s gross bookings, excluding cancellations, have decreased compared to the previous year. (Update: We initially misinterpreted this table and have revised our analysis accordingly.)

Let’s examine how these developments translate into standard accounting metrics. Here is Airbnb’s reported income statement:

As expected, Airbnb’s year has presented challenges. The company is currently projected to achieve a size comparable to its performance in 2018, based on our calculations.

Comparing the first three quarters of 2019 to the same period in 2020, the most significant change—aside from lower revenue resulting in lower costs—is the considerable reduction in sales and marketing expenses. Airbnb reduced its spending on sales and marketing from $1.18 billion in the first three quarters of 2019 to $545.5 million during the corresponding period in 2020.

To determine Airbnb’s final position for 2020, we need to review its quarterly results. Here they are:

Airbnb’s growth continued on a year-over-year basis until the quarter ending March 31, 2020, at which point it was essentially unchanged compared to Q1 2019. Without the impact of COVID-19, the company would have shown growth. The quarter ending June 30, 2020, reveals the full extent of the damage, with Airbnb’s revenue declining from $1.2 billion in the year-ago quarter to $334.8 million. This represents a significant downturn.

However, Q3 2020 demonstrates a substantial recovery. While Airbnb’s third-quarter revenue of $1.34 billion was lower than the $1.65 billion reported in Q3 2019, the company experienced a fourfold increase compared to the preceding quarter. If the company achieves a similar revenue level in Q4, it could surpass its 2018 performance by several hundred million dollars.

Notably, Airbnb transitioned from several unprofitable quarters to profitability in Q3, mirroring its performance in Q3 2019. However, the $219.3 million in GAAP net income for the third quarter is considerably less than the losses incurred earlier in the year, meaning the company will not achieve overall profitability in 2020.

Airbnb also presented adjusted profit metrics. Its adjusted EBITDA figures are based on the following definition:

The decision to exclude restructuring costs has been questioned, with Amy Cheetham of Costanoa Ventures suggesting that “omitting restructuring costs seems somewhat aggressive?” We concur, as it provides the company with excessive latitude to highlight positive results, such as reduced operating costs, while downplaying the factors that contributed to those results, like business restructuring.

This approach allows the company to benefit in multiple ways, while disregarding associated costs.

Nevertheless, we will present the highly adjusted EBITDA figures reported by Airbnb:

Even after removing numerous costs, the numbers remain unfavorable. Furthermore, the company’s cash burn throughout the year is a concern, helping to explain why Airbnb sought additional capital earlier in the year.

Evaluating this S-1 filing is complex. It contains the information we anticipated, but the weight investors assign to the company’s year-over-year revenue declines in Q3 2020 versus its recovery from Q2 2020 will be crucial in determining its ultimate valuation. Overall, Airbnb has demonstrated a remarkable ability to rebound from a significant low point.

Now that it is going public, simply acknowledging “good job” is insufficient; the company needs to establish a strong price and trading performance. Therefore, all attention will be focused on its initial IPO price range, as this will indicate what investors are willing to pay for the company’s equity.