Play all audios:
It is perhaps no surprise that the word Covid appears 215 times in Airbnb’s 349-page float prospectus. The document, published on Monday night, shows just how bad it became for the
home-sharing service in the worst months of the pandemic. This January, guests made a net 33.3 million bookings on Airbnb for rooms and “experiences” such as city tours, cookery classes and
stand-up comedy workshops. In March, they made a net 4.1 million cancellations. Like the rest of the travel industry, Airbnb was in crisis. Brian Chesky, chief executive, launched a drastic
cost-cutting operation in April, saying that Airbnb needed to go “back to our roots” as a home-sharing service. He sacked 1,800 employees, a quarter of the company’s workforce, and slashed
expenses. He also raised $2 billion debt from banks and existing investors. So it is something of a miracle that, seven months on, the loss-making 12-year-old company is preparing to go
public. Airbnb is expected to raise as much as $3 billion to achieve a valuation of about $31 billion. Airbnb’s pitch is that it has weathered the pandemic better than the average travel
company and stands to benefit in the post-virus world. “The lines between travel and living are blurring, and the global pandemic has accelerated the ability to live anywhere,” the company
claims. Advertisement Mr Chesky and Joe Gebbia came up with the idea for Airbnb when they were struggling to pay rent in San Francisco. The design school graduates enlisted software
developer Nathan Blecharczyk and set up the airbedandbreakfast.com website to rent out their flat to delegates attending a conference nearby. Airbnb attracted new hosts as well as headlines
for its oddball listings and, increasingly, raucous parties. In one incident, an American host returned to their Manhattan apartment to discover an orgy in full swing. Airbnb now has 5.6
million active listings and has raised $6.4 billion in venture funding, according to Crunchbase. It charges guests a service fee of up to 14.2 per cent and hosts 3 per cent. If Airbnb’s
initial public offering (IPO) proceeds as planned, its three founders will be made billionaires several times over. Mr Chesky, 39, owns 15.4 per cent of the company. Mr Gebbia, 39, and Mr
Blecharczyk, 37, each own 14.2 per cent, the IPO prospectus shows. Bookings rebounded quickly from May onwards. Airbnb put this down to a change in guest behaviour: people wanted to get out
of their homes but they did not want to travel far, so they began booking stays locally. Advertisement “They decided to get in their cars and travel close to home, often staying in small
towns and rural communities,” the company said. “Our business rebounded faster than anyone expected, and it showed that as the world changes, our model is able to adapt.” Aaron Levie, a
Silicon Valley entrepreneur, said that Airbnb was “the perfect market hedge”. “If you believe the vaccine is coming quickly, people want to travel again,” he said. “If you don’t believe it’s
coming quickly, people want to work remotely in different locations longer.” Still, Airbnb warned that the recent second wave of infections had prompted a drop in bookings worldwide and
would hamper its fourth-quarter performance. “Covid-19 is continuing to materially adversely affect our business and financial results,” it said. It is not as though Airbnb was making big
profits before the pandemic: in keeping with big Silicon Valley start-ups, it was racking up big losses. This year’s loss is already on course to exceed last year’s and given the gloomy
outlook, may be even larger than forecast. So why is Airbnb choosing to go public now? One reason could be the resilience of American stock markets during the pandemic. Another could be the
recent successes of several high-profile tech floats, such as those of Palantir and Unity. Advertisement Airbnb is also likely to be facing pressure from its investors, especially the
private equity firms and banks that loaned it $2 billion in April. A further reason, and one not covered in Airbnb’s lengthy prospectus, could be that lucrative stock awards given to many
Airbnb employees, particularly early ones, will start to expire early next year, rendering potential huge payouts worthless. According to the prospectus, by the end of September, these
awards were worth $3.5 billion. COSTS LEADS TO HEAVIER LOSS Airbnb was spending freely before the pandemic struck, pouring money into expanding in China, upgrading its guest vetting system
and growing its experiences business. There were even plans for an Airbnb magazine, television show and bespoke flight booking system. These investments helped to push Airbnb’s costs and
expenses to $5.3 billion last year, more than the company’s $4.8 billion revenue. As a result, the annual loss widened markedly to $674 million, from $17 million in 2018. Costs and expenses
in the first nine months of this year stood at $3 billion and revenue at $2.5 billion. For this period, Airbnb’s loss doubled year-on-year to $697 million. Some investors were worried about
Airbnb’s spending before the pandemic, but April’s cost-cutting programme may have assuaged their concerns. The $3 billion costs in the first nine months of this year, which saw mass
cancellations in the early months of the pandemic, were lower than the $3.9 billion in the same period last year. Indeed, in the third quarter of this year, Airbnb turned a $219 million
profit.