A Month after Airbnb’s IPO
Issue 1 (08/01/2021) - Post IPO High: How did Airbnb Get There, and Where are they Going Next?
Welcome to the first Issue of My Newsletter. I’m currently thinking of what to call this newsletter and so far, I can only think of Startupology. Please leave a comment for additional suggestions. I hope that you enjoy!
News about Airbnb’s fantastic IPO flooded every news channel, report, and blog as it remarkably closed at $144 after the initial pricing of $68 a share the day before[1]. The 112% increase in the share price fails to reflect the tumultuous time Airbnb had throughout 2020 where they pivoted and rebranded the company to combat the repercussions brought on by Covid-19. Regardless, however, Airbnb navigated through an uncertain period to take the rank of perhaps the most exciting IPO on this side of the decade. Many argue on both sides of the dispute of undervalued vs overvalued and reflect their thoughts on the future of Airbnb, however, one must not ignore the fact that Airbnb did many things correctly during their IPO. They must now charter to maintain their status, meet the challenges that Covid-19 continues to pose and on how to break the $150 per share threshold that has proved rather difficult a month on from their IPO.
Why did Airbnb’s IPO surge?
So how did Airbnb’s market cap exceed Expedia, Marriott International, among other industry giants? Especially in the midst of a pandemic? Seems absurd, doesn’t it? According to me, this boils down to a few reasons that heavily influenced investor, consumer, and public expectations of Airbnb and the lodging/vacation rental industry.
The General of a Wounded Army
Now, there is no denying that the vacation rental industry is a shell of its former self due to the raging pandemic. Airbnb’s market share accounts for more than 20% of the industry, making it the market leader[2]. Therefore, I view Airbnb as the general of a wounded army. Although the industry’s traction depleted during the pandemic, Airbnb saw a less than proportionate fall, consolidating their market share and influence.
The hotel industry as a whole saw “greater drops in both Occupancy and Average Daily Rates than the short-term rental industry”. The former experienced a 64.8% decrease in Revenue per Available Room (RevPAR) whilst the vacation rental industry fell by just 4.5%[ibid]
Pandemic? That’s 2020 News
People are ready to move on from the pandemic. Pandemic fatigue has set in and people are fed up. Alongside this, news circulated about the potential approvals of vaccines which bolstered public confidence and investor appreciation for companies such as Airbnb. These factors may play as key proponents for the high valuation of the IPO.
The Art of Storytelling
“If there was ever a moment in time that we’d ever demonstrate we’re adaptable, it would be a pandemic,” - Brian Chesky, CEO of Airbnb
The founders of Airbnb have excavated the key to retaining consumer confidence in their vision by pivoting when required, supporting their landlords, but most importantly, developing a captivating story. They have mastered the art of storytelling by illustrating a new brand image during the pandemic by encouraging remote holidays, healthy tourism, and staycations. They are the perfect example of pivoting and adapting to not only consumer needs, but situational needs. Alongside this, they generated a fantastic story that perhaps didn’t increase bookings nationwide, but it certainly reduced the rate of decrease.
What does 2021 look like for Airbnb?
2021 marks the first complete year post IPO. What does it look like? What are potential problems? For a company just running off of an IPO high, their following year remains not only exciting, but incredibly crucial.
Airbnb must now navigate not only through what hopefully is the final months of the pandemic, which include social distancing and strict hygiene practices, but also through stricter government regulations, racial disharmony, among other societal changes.
Firstly, Airbnb continues to leverage their pandemic friendly initiatives of remote lodging and boasts a new consumer interest. Airbnb markets that their offerings remain parallel with the public’s wants, which according to the team is not large metropolitan cities, but rather is remote outings, classic vacation destinations, and seclusion.
Furthermore, Airbnb may look into encouraging the idea of renting to promote lifestyles rather than vacations. The CEO stated that “We’re seeing a little blurring between traveling and living”, stating that people have brought new life into nomadism. The sudden onslaught of remote life means greater geographical independence so people are moving around more on a semi-permanent basis. A professor of McGill University, David Wachsmuth states that people are able to earn more renting apartments through Airbnb than through typical methods[3].
Therefore, Airbnb’s future seems to promote pandemic friendly selections to stay as well as more long term residences. Now, the potential level of success from these two pivots remains up in the air, however shows disruptive innovation and may indicate Airbnb’s encroachment on the housing industry.
Breaking the $150 Glass Sealing
Since the IPO, if we can take anything regarding Airbnb, it is the fact that breaking that $150 ceiling has proved more than difficult. Out of the last month, it could only sustain less than a week above this threshold. Why is that?
Uncertainty, to put it shortly. People are confident about Airbnb, and that’s what soared their valuation; however, there remains too much uncertainty in the market. The pandemic, the air travel industry, increased restrictions on living regulations, as well as the company taking a more iron fist approach towards said regulations… These headlines all reinforce market and economic uncertainty.
California banned short term lodging that came into effect December 14th until the end of 2020 at least[4]. Airbnb suspended Palm Springs rentals. The pandemic saw second and third waves. Investors unable to completely justify Airbnb’s market cap. Investor’s not feeling as comfortable holding ABNB as they did in the week of the IPO. Beyond headlines, these all reinforce the notion of uncertainty as well. Now, that is not to say the shares will not break the ceiling at some point in 2021, it probably will. But these are the justifications for why it hasn’t yet, and why the growth rate has somewhat plateaued in the last two weeks.
Final Remarks
I agree, Airbnb is the alpha-unicorn of 2020, and perhaps the most sought after unicorn of the last five years, but it is still a startup, at the early stages of infancy. It is already a household name, but can it sustain that still reeling from the upset of a pandemic as well as many other challenges ahead.
*Please note that any opinions expressed in this article are mine and not industry experts. Therefore, should you make any investment decisions, please do not use this article as a deciding factor*
Reference
[1]Feiner, Lauren. “Airbnb Skyrockets 112% in Public Market Debut, Giving It a Market Cap of $86.5 Billion.” CNBC, 10 Dec. 2020, https://www.cnbc.com/2020/12/10/airbnb-ipo-abnb-starts-trading-on-the-nasdaq.html.
[2]“Airbnb Competitors: An Overview of the Rental Market.” Smartbnb, 13 Aug. 2020, https://www.smartbnb.io/competitors-for-airbnb/.
[3]“COVID-19 Impact on Hotels and Short-Term Rentals.” AirDNA - Short-Term Vacation Rental Data and Analytics, 12 Aug. 2020, https://www.airdna.co/blog/covid-19-impact-on-hotels-and-short-term-rentals.
[4]Glusac, Elaine. “The Future of Airbnb.” The New York Times, 24 Sept. 2020. NYTimes.com, https://www.nytimes.com/2020/09/24/travel/airbnb-pandemic.html.
Supplementary References
Ponciano, Jonathan. “Airbnb Stock Down 25% Since IPO, Three Billionaire Cofounders Lose $5 Billion In 3 Trading Days.” Forbes, https://www.forbes.com/sites/jonathanponciano/2020/12/15/airbnb-down-25-since-ipo-three-billionaire-cofounders-lose-5-billion-in-3-trading-days/. Accessed 4 Jan. 2021.
Settembre, Jeanette. “Airbnb Suspends Palm Springs Rentals during ‘party House’ Crackdown.” Fox News, 24 Dec. 2020, https://www.foxnews.com/travel/airbnb-suspends-palm-springs-rentals-party-house.
Weed, Julie. “California Is Banning Short-Term Rentals. Why Can’t Travelers Get Refunds?” The New York Times, 15 Dec. 2020. NYTimes.com, https://www.nytimes.com/2020/12/15/travel/airbnb-vrbo-refunds-travel-ban.html.
(The Logo belongs to Airbnb)