2020 has been a bumper year for companies interested in going public. Heading into mid-December, the major stock market indices are near or at all time highs, making it an attractive time for private companies to raise capital by listing their shares on public markets. A few weeks ago, we took at look at Doordash's S-1 filing. As a reminder, an S-1 filing is a document companies must file with the SEC when they intend to go public - it discloses some basic financial information about the company and how it plans to use newly raised capital.
A few weeks back, another tech-industry giant filed an S-1: Airbnb. Soon, retail investors will be able to purchase shares in the highly popular vacation rental firm that has come to dominate the digital housing rental space. Initial estimates indicate that Airbnb is expecting to raise around $30+ billion in fresh capital when it starts trading, a valuation which would make it the 3rd most valuable IPO of the year. Shares are expected to list on the tech-heavy NASDAQ in December and trade under the ticker "ABNB".
Like many other firms that are opting to raise capital via public markets this year, 2020 has been a bumpy ride for Airbnb. Data included in the firm's S-1 show a significant decline in bookings during 2020 attributable to the effect of the coronavirus pandemic on the travel industry:
This decline in bookings unsurprisingly led to a significant drop in revenues during the first two quarters of 2020, leading to larger than normal losses for Airbnb in Q2. As the chart below illustrates, Airbnb is one of many large technology platforms that has made a habit out of operating at a loss in an effort to build scale that can eventually be converted to revenues. Interestingly, Airbnb responded very quickly to the magnitude of its Q2 2020 loss by laying off around 25% of its workforce and divesting non-core assets in a major cost cutting push. Combined with a trend of metropolitan office workers seeking long-term rentals in which to wait out the pandemic, the cost cutting effort led the firm to profitability in Q3 2020:
Obviously further pressure from global health headwinds could damage Airbnb's business on a go forward basis, but the company's response to recent developments shows at least some amount of resilience. Still, Airbnb has yet to turn a profit during any one fiscal year, which should be worrying to risk-adverse investors. Further risks include regulatory action and restrictions placed on rentals in residential areas - the company has taken some flak from neighborhood residents who don't appreciate their neighbors home being rented out for a house party. However, upside certainly exists for Airbnb, and the company's infrequent profitability is likely to be interpreted with optimism by tech investors used to larger and more consistent losses for newly public tech companies. As Airbnb settles into its new home on public markets, read through the firm's-1 filing here and think through whether some new Airbnb shares could bring some sunshine to your portfolio this winter.