What the recent Airbnb IPO suggests about the future of hospitality?
Airbnb is one of the players in the hospitality industry that have been affected by the Covid-19 pandemic. Everything from travel restrictions to cancellations to reduced occupancy has disrupted Airbnb’s normal operations and therefore causing loss of revenue. In the second quarter of 2020, the company reported losses amounting to $575.6 million. In an attempt to prevent further losses, the company responded by cutting around 25% of its workforce, cutting down on marketing expenses, and reducing executive salaries for six months. These measures helped the company to turn around its fortunes which resulted in a $219.3 million profit in the third quarter of 2020. Although their profit has reduced as compared to 2019, Airbnb is doing fairly even as the Covid-19 pandemic continues to bring many sectors of the hospitality industry to a standstill.
Despite the impact of Covid-19, Airbnb made their debut as a publicly-traded company on December, 9th,2020 and its shares began trading on Nasdaq on December, 10th, 2020. The company went public at a time when the hospitality industry is facing a devastating impact from the covi9–19 pandemic. Airbnb’s shares more than doubled on the first day of trading with their stock trading at $148 per share and then increased to $160. This share price valued the company at close to $100 billion which is more than double the valuation Airbnb sought in their IPO debut. Airbnb’s debut came as investors are clamoring for new ways to invest at this time when the pandemic has affected almost every sector. The company filed for its IPO in August 2020, a few months after laying off 2000 employees. Before the entry of covid-19 into the world scene, Airbnb was doing well in terms of profit. In 2017, the company made $2.6 billion in revenue, and in 2018, they made $3.7 billion. Their revenue in 2019 increased by $1.1 billion whereby they closed the year with $4.8 in revenue. Airbnb’s stock market debut is certainly one of the largest IPOs in 2020.
Airbnb’s share sale will add billions to the company’s fortunes which will help to grow the company once the pandemic is behind us. The company will also allow staff to sell up to 15% of their shares after the listing. With this major share sale, Airbnb has enhanced its potential to post long-term growth and exceed the valuation of $100 billion, especially at this time when the world is launching trials of covid-19 vaccines. Besides, many people tend to prefer homestays rather than traditional hotels as they try to avoid places with a high amount of traffic. This trend ensures the Airbnb business continues to thrive even though many people are not traveling like before.
What does the recent Airbnb IPO suggest about the future of hospitality?
Airbnb’s recent IPO has many implications for the company’s performance going forward and the future of hospitality at large. First, its share sale will boost the company’s performance in a major way. Though the company had had to lay off about 25% of their workforce, they will be able to recruit more employees once business returns to normal. This means there will be more job opportunities in the hospitality sector. Secondly, the company has allowed its staff to sell up to 15% of their shares after the listing. This move will certainly create more millionaires, and staff does not have to wait for the usual lock-up period to sell their shares. Therefore, Airbnb employees who bought shares in the company will expect big payouts which will result in a happier workforce. Since employees are every company’s greatest assets, Airbnb’s employees will be more committed to their job at the company.
More guests are choosing to stay local
Another trend that is expected to take shape going into 2021 is the preference for rural bookings. Many vacationers looking to escape crowded places are opting for rural rentals. Airbnb hosts in rural areas are already seeing huge surges in business. Airbnb business is expected to pick up due to pent up demand and the aspect of people looking for a safer environment. In June 2020, Airbnb earned more than $200 million from rural bookings. This represents a 25% increase from the amount the company earned from rural bookings in 2019. This trend points to the fact that guests are choosing to stay local.
What challenges are ahead for Airbnb?
At the moment, the biggest threat to Airbnb’s business is the covid-19 pandemic. With more people staying at home to curb the spread of covid-19 and hosts opting not to list their accommodations with Airbnb, this could have a negative impact on the company going into 2021. Moreover, local governments are constantly adjusting their restrictions on rentals and this means Airbnb’s performance in 2021 and beyond will be determined by the nature of restrictions.
The future is promising for Airbnb
The covid-19 pandemic has had a major impact on Airbnb in 2020 as customers have had to cancel their travel plans amid rising cases of infection. Although the pandemic will continue to impact the hospitality industry at large, Airbnb is one of the players that will come out stronger. Among the factors that will improve Airbnb’s performance in the future is the projected demand for short-term rentals in rural areas. The company projects that guests have started to prefer short-term rentals as work-from-home seems to be transforming to work-from-any-home on Airbnb. Besides, an increasing number of guests are booking stays closer to home. Since March 2019 the number of guests booking closer to home on Airbnb increased from 13% to 30%. This means that the demand for local rentals is expected to increase in 2021 especially with the pent up demand.
Since guests are looking for affordable options at this time when the economy is struggling, Airbnb expects demand for cheaper options. Guests are also desiring private spaces more than before. All these trends indicate a very promising future for Airbnb and hospitality in general. With trials for the Covid-19 vaccine gearing up across the world, things are expected to go back to normal in 2021.
Rupert Runewitsch, Founder — My Vista
