The forthcoming Airbnb IPO is expected to be the biggest one this year as the short-term rental unicorn aims to raise $3 billion in proceeds and bring the company valuation up to $30 billion.
Airbnb filed for their IPO back in August, however, the official date for the actual listing is still unknown. Reports suggest that Airbnb IPO debut may come as early as December 2020 despite the escalation of the Covid-19 pandemic that heavily disrupted the travel industry. The Airbnb IPO timeline seems to become clearer by the day.
In anticipation of the actual listing date, investors are closely following the development. Potential shareholders are eagerly waiting for the publication of the Airbnb IPO prospectus which will be the guiding document for making a decision to invest.
In this article, we explain what the Airbnb IPO prospectus is and what can you expect to learn from it.
The IPO prospectus: What is it and what is its purpose?
An IPO prospectus is the key document that can help investors to make an informed decision about buying shares in a stock market debut. The document is produced jointly by the company management and the investment bankers that will broker the initial public offering.
Once it’s published, the Airbnb IPO prospectus will outline all risks and opportunities of the business, and it will detail all relevant financial information about the short-term platform.
The IPO prospectus will be distributed to regulators and to investors interested in buying shares.
Elements of an IPO prospectus
An IPO prospectus is split into several sections, each one addressing a specific aspect of the business, the company, and the market it operates in.
We can expect the Airbnb IPO prospectus to have the following segments:
A brief summary of the company’s intentions and financial information
This section usually provides an answer to the question of why the company wants to sell stock, which means that investors may learn about the company’s intentions. Investors are mainly interested to understand how many shares are planned to be offered and at what price. Investment bankers in this section provide a résumé about the main details investors need, including the broad objectives of the company.
In the ‘risk factors’ section, investors are informed about possible risks relating to the investment. This part of the document discloses the nature of the company’s risks.
Industry data and metrics
Another reason this document is issued is to describe the financial measures that are significant for the industry and to point out how the company going public corresponds to the economic reality.
Use of proceeds
This section contains details about the investment objectives or why the company wants to raise money by the IPO. A young company typically goes public to generate capital from investors to fund future growth, but some companies become an IPO to cover the debt, to allow its employees to sell their shares and raise money or to buy another company.
Here investors are informed on the types of financing that were used by the company to raise money. Usually, a company has a mix of forms of financing, that are explained in this section.
An IPO prospectus also contains the company’s past financial performance that investors would like to know. Information in this section could include EBIT, net profit, etc.
Management’s discussion and analysis of financial condition
This section consists of a full narrative explanation of the financial statements. It is particularly important as it reveals the financial conditions and future prospects of the company.
Information on the products or services that the company provides as well as why customers are interested in them could be found in this part of the IPO prospectus.
In this section, investors can find the names of top management team members (the chief executive officer, chief operating officer, chief financial officer and the members of the board of directors) and their biographies.
The IPO prospect details to investors how much executives of a company are paid.
In this section, investors can find information on related-party transactions. As many young companies might have complex business relationships between founders, families or friends, these connections have to be clarified in the IPO prospectus. Related-party transactions are legal, but they might create conflicts of interest.
Principal and selling shareholders
Investors are interested to understand who is selling. The alarm is usually on when there are more insiders who are selling.
This is a list where a company lists all investment banks and advisors who assisted to start selling stock to the public. IPO underwriters are usually investment banks with IPO specialists that work with a company to make sure that regulatory requirements are met.
In this section, companies reveal whether there are any suits against them. Also, there is an explanation by the company on how important it believes the litigation is.
Market data and metrics that should matter
Are you interested in investing in Airbnb shares, and if so, what are the key metrics that matter for the upcoming IPO? AllTheRooms selected several market indicators to keep an eye on that can help the potential investor to work out if purchasing Airbnb stock is worth it.
Number of listings
In terms of business growth and revenue model sustainability, a significant indicator to consider is the number of listings.
The number of active listings on Airbnb’s platform can help investors understand the company’s market share.
Most recent data from AllTheRooms shows that there has been continued growth in the number of listings on Airbnb over the last three years.
AllTheRooms reports ‘active’ listings, which have had at least one booking in the last 12 months. According to their data analysis, the Covid-19 has slowed down Airbnb’s active listing growth, but it hasn’t significantly dropped.
The numbers show that as of August 2020, the global short-term rental giant had 5.8 million active listings. The graph presented by AllTheRooms on the global number of Airbnb listings depicts data from the period of January 2017-July 2020.
Number of bookings
Another insightful indicator for investors is the number of bookings made through the platform. According to AllTheRooms, over the last 3 years, the number of nights booked at Airbnb listings had a solid year-on-year growth.
However, the coronavirus pandemic has had an adverse effect on the booking volumes: as of August 2020, bookings decreased by 41.3% in contrast to August 2019. Bookings began to recover in June 2020, but disproportionately: bookings in areas of the US revived very strongly, while other regions such as Europe and Latin America fell behind. From the graph, it is apparent that the numbers as of August 2020 are missing.
Average Daily Rate on Airbnb (ADR)
This is the average price a guest pays to stay at an Airbnb listing. As pointed out by AllTheRooms, the ADR differs for a different type of property and can be in the range of $10/night for a spare room, to mansions that cost thousands of dollars a night.
As of July 2020, there was a substantial increase in the global average, which according to AllTheRooms, is likely caused either by higher cleaning fees and/or by a post-lockdown upsurge in demand for in staycations and by hosts looking to capitalize on the renewed demand. According to the numbers, as of August 2020, the global average ADR was $137.
Average Revenue Per Available Room (RevPAR)
The global revenue per available room in August 2020 was $20. Similar to the metrics used in the hotel industry, RevPAR is calculated by multiplying the average daily rate by the occupancy rate.
The data presented by AllTheRooms shows that in the period January 2017-July 2020, Airbnb’s average revPAR has been fluctuating.
Components of Airbnb Revenue
According to the statistics presented by AllThe Rooms, the fee on bookings is the largest component of Airbnb’s revenues, while Airbnb experiences have a minor impact.
The analysis of revenues in the third quarter of 2020, is limited to the months of July and August only. However, when scrutinizing revenues, it is important to consider that Airbnb cut 25% of its workforce in 2020 to curb its coronavirus-related losses.
Revenue breakdown by geographical area
The key markets for Airbnb are Europe and North America. The latter generally contributes more. Post-Covid, these two markets have recovered more quickly. Compared to Europe and North America that had a slower but steady rise, Asia, Latin America, and Africa have demonstrated 50-60% year-on-year increase. The data presented in the graph on Airbnb’s revenue by region is available by Q3 2020.
Risk factors according to AllTheRooms
Other short-term rental platforms that take up large market share (such as Booking, Vrbo and Tripadvisor) are Airbnb’s main competitors. These booking sites are a part of a larger OTA brand which gives them an advantage over Airbnb. In fact, being part of a larger vacation rental entity allows these platforms to utilize cross-selling of vacation rental properties to a larger customer base. This could eventually curb Airbnb’s growth possibilities in the longer term.
Regulation is another major risk facing Airbnb. The short-term rental economy has been seen by local governments around the world as the culprit for exacerbating gentrification, increasing the risks to public safety and worsening the housing affordability crisis. In addition to that, concerns about taxation have become more prominent as short-term rental operators have found ways to unfairly avoid paying taxes that hotels have to pay or aren’t paying taxes at all.