Airbnb IPO: Its Own Success the Biggest Obstacle?
Next year could be when California-based Airbnb reserves its spot on Wall Street with an upcoming IPO as many Silicon Valley companies are reaching maturity and the market becomes hungry for fresh and exciting offerings. However, the main obstacle for Airbnb IPO stock is its own success; it can afford to operate without the need to raise cash in the markets.
Independence also allows it to avoid regulatory constraints and pressure from investors as the company continues to sharpen its strategy. Too much of a good thing is not always best, however. If Airbnb, whose valuation is estimated at $25.0 billion according to The Wall Street Journal, continues to live in its haven of independence, like a highly eligible bachelor/ette, it risks missing the best timing to maximize gains from its formal market debut. (Airbnb Raises $1.5 Billion in One of Largest Private Placements, The Wall Street Journal, June 26, 2015.)
Unlike that other Silicon Valley darling, Uber, Airbnb does not have to deal with angry taxi drivers and their lawyers in capitals all over the world. This means it has fewer constraints holding it back from filing papers before the SEC.
A few weeks ago, Airbnb’s CFO left the company. He was promptly replaced by no less a figure than Laurence Tosi, the CFO of the famous Blackstone’s CFO, who made the move from the U.S. East Coast to the center of San Francisco. Tosi brings the necessary qualities to bring the company to the next level, said Airbnb CEO and co-founder Brian Chesky.
The bedroom and short-term residential facility purveyor could already be at an ideal point to launch an IPO. By connecting owners and vacationers, the California site has become the world’s largest proprietor and one of the most aggressive companies representing the sharing economy.
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Airbnb has 1,500 employees. The company is worth several times more than the Accor Hotel Group (PA:AC), owner of Novotel, needing 180,000 employees to function. Airbnb revenue could reach $10.0 billion and profits $3.0 billion by 2020, says Fortune, mesmerizing investors. (Source: Here’s how Airbnb justifies its eye-popping $24 billion valuation, Fortune, June 17, 2015.)
A bubble, you say? Not necessarily. Airbnb is another example of the sharing economy, which does away with labor and other assets to focus on the service and maximization of existing assets. Airbnb, the hotel chain that doesn’t own hotels, has some direct rivals, including HomeAway, Inc. (NASDAQ:AWAY), parent of HomeAway and Homelidays, which already trades on the NASDAQ. Its main targets, however, are the big chains like InterContinental, Hilton and Marriott.
Airbnb’s story began in October 2007 when and Jo Gebbia and Brian Chesky decided to offer three air mattresses for rent to visitors at the Industrial Design Society of America conference in San Francisco. They created a special web site called “air bed and breakfast” to advertise the service, which enjoyed success given that all hotels in town were booked. Nathan Blecharczyk, a Harvard computer science graduate, joined Gebbia and Chesky to enhance the site—which is the service itself. The service started to take off in 2011.
Airbnb covers the lessors for damages up to $800,000 and monitors tenants’ profiles, which is helping the company from essentially becoming the world’s leading hotel chain, offering the winning proposition of unbeatable prices. In the U.S., the gap with the price of a hotel for a night can be 30% or even 50%. In Paris, an Airbnb charges an average 97.00 euros, against 161 for an actual hotel.
If there is a downside, it is that authorities on both sides of the Atlantic want to further regulate this activity through special taxes as the hotel lobby tries to confront the strange intruder, which is stealing away so many customers. Airbnb has the flexibility to manage this, too.