What to note:
- 6 key strengths of Airbnb: unique host community, engaged guest community, global brand, global network, custom-built platform, design-driven approach.
- 3 key risks: still loss-making, COVID-19 or similar disruptions, laws and regulations.
- Though struck by COVID-19 earlier in the year, Airbnb has rebounded to pre-pandemic levels as people sought unique experiences in short get-aways from home.
Airbnb, yet another successful start-up platform, has finally kicked off its blockbuster IPO. It is expected to list on the Nasdaq (NASD) in December 2020, under the ticker “ABNB”. IPO price has yet to be confirmed but the company is looking to raise US$3bn. This values it at over US$30bn, according to one source.
Who is Airbnb?
Without owning a single property, Airbnb is the world’s largest accommodation provider.
It is in the same league as Uber and Alibaba, the largest cab provider that does not own any vehicle and the world’s largest retailer without inventories. All these companies connect vendors/sellers to users/buyers by leveraging their own technology platforms.
Airbnb started in 2007 when founders, Brian and Joe, were looking for ways to cover their apartment’s rental. They seized the opportunity to rent accommodation in their apartment – airbeds – to foreigners coming to town for an international design conference. Their first successful hosting of a group of designers during the conference laid the foundation for Airbnb. The trust and connection developed between the two founders and their guests rendered a whole new level of travel experience.
Nate, a software engineer, came on board a year later to improvise a platform design. The platform was designed around the core value of creating trust between hosts and guests by including their profiles, two-way reviews, messaging and secure payment. Thereafter, Airbnb built up its hosting business using its own technology platform. It has since provided a different kind of experience to travellers and hosts, one that is built around human connection.
Before this idea became widely embraced, travel was conceived as leisure stays in hotels and visiting popular landmarks and attractions. Travellers often leave the country they visit without experiencing how the local people live. Through hosting, Airbnb offers another type of travel experience. Travellers stay in the neighbourhood where their hosts live, spend time with their hosts and have deeper connections with the places they visit.
Airbnb has grown into a network of more than four million hosts listing private rooms, apartments and villas for rent, from one night to extended stays, in more than 220 countries and territories around the world. Since its launch, Airbnb hosts have made over 825 million bookings and have cumulatively earned over $110bn, the company said in its SEC filing.
Today, you can find accommodation in every imaginable style on the Airbnb platform. Some hosts share their spare rooms while others offer their spare houses. Some have even built themed properties to provide one-of-a-kind experiences to their guests.
Let’s explore the numbers
Airbnb charges both guests and hosts service fees for providing a reliable platform to connect both parties.
Investors and analysts typically look at transacted values rather than profits for companies like Airbnb because they are still not profitable in their growth stage. Transacted values are a key indication of the chances a business can grow big enough to turn profitable at some point, when it attains scale. Gross Merchandise Value (GMV) is the performance metric commonly used for e-commerce platforms like JD.com while Gross Booking Value (GBV) is used for ride-hailing platforms such as Lyft.
Table 1: Airbnb’s financial figures.
|2018 (US$)||2019 (US$)||2020* (US$)|
|Gross Booking Value||29.4bn||38bn||18bn|
*Figures comprise only data for the first nine months ended 30 September 2020
Source: Airbnb’s IPO prospectus
Airbnb’s GBV was US$38bn in 2019. This was a 29% increase from the US$29.4bn in 2018. Revenue also grew 32% to US$4.8bn in 2019 from US$3.7bn in 2018. However, due to the COVID-19 pandemic, GBV only hit US$18bn in the first nine months of 2020. Revenue was US$2.5bn. The two were down 39% and 32% yoy respectively.
Figure 1: Gross Booking Value
Source: Airbnb’s IPO prospectus
Figure 2: Adjusted EBITDA
Source: Airbnb’s IPO prospectus
On top of commonly reported figures, Airbnb uses Nights and Experiences Booked to measure the scale of its platform. This number is the sum of the total number of nights booked for stay, total number of seats booked for experiences, net of cancellations and alterations in a financial period.
Figure 3: Nights and Experiences Booked
Source: Airbnb’s IPO prospectus
Though initially hit by the pandemic, Airbnb’s business bounced back when people got tired of staying at home. Still cautious about avoiding crowded hotels or touristy places, many sought to travel domestically off the beaten track, preferably to places that offer unique experiences. In Q3 2020, Airbnb’s GBV rebounded to US$8bn, with Nights and Experiences Booked returning to 61.8mn. These were both pre-pandemic levels.
According to Airbnb’s prospectus, the company will use net proceeds from its IPO for working capital and other expenditures. A portion will be used for opportunistic acquisitions or investments in businesses, products, offerings and technologies that can deepen its current strengths.
What are its current strengths?
Management highlighted six key strengths that have given Airbnb an upper hand in the industry. These are its unique host community, engaged guest community, global brand, global network, custom-built platform and design-driven approach.
With the money from its IPO, Airbnb wants to unlock more hosting and expand its global network. It believes it has just scratched the surface of this newly-created sub-sector in tourism. Worldwide, the Total Available Market (TAM) is estimated to be US$3.4tn. Against this, the Serviceable Available Market (SAM) is estimated to be US$1.5tn *. The difference between TAM and SAM is US$1.9tn. This means Airbnb has the potential to grow its SAM by 100%.
*TAM is the total market demand for a product or service. SAM is the segment of the TAM targeted by a company for its products and services, within its core competencies.
The company’s next two strategies are to invest in its brand and continue to engage its guest community. Don’t forget, Airbnb’s accommodation experience is unlike the traditional offering of hotels. It intends to leverage its Unique Selling Point (USP) to expand its guest community, by marketing to existing guests as well as bringing in new guests. It will continue to evolve new travel and living experiences.
Innovating its last two strengths of platform and in-person experiences will make Airbnb more accessible and appealing to new hosts and guests while increasing its engagement with its existing community.
Airbnb is not immune to challenges.
Since its official launch in 2008, Airbnb has had to wrestle with new regulations all over the globe, as affected parties like hotel operators and landlords lobbied for stricter regulation of short-term rental and home-sharing. Countries like Japan, Thailand and Spain have restricted hosting via Airbnb. Airbnb is in fact banned in Singapore where homeowners stare at fines of up to S$20,000 for hosting guests on short-term stay. Even in the US which is Airbnb’s biggest market, homes are not allowed to be rented out for holiday stay in New York City .
COVID-19 is the latest salvo fired at the airline, hotel and travel industries. Worldwide lockdowns practically felled all travel in the second quarter of 2020. Airbnb was not able to escape but fortunately, its bookings rebounded in the third quarter when people sought relief from the confines of their homes in unique travel experiences in the domestic market. (There was no national lockdown in the US while by the third quarter, most countries had relaxed their domestic movement restrictions). Airbnb today has become one of the top choices in travel and accommodation booking. Having said that, a worsening of the pandemic could still affect its operations.
Ease of technology transfer and replication can also make Airbnb vulnerable. Though Airbnb does not yet have direct competitors with the exact same business models, it does face some pretty stiff competition from online travel agencies like Expedia, Booking.com, Qunar and Meituan. Some other online platforms like Tripadvisor, Klook and KKDay also continue to innovate and expand to challenge Airbnb’s market share. The battle of cash-burning in multiple regions continues, leaving Airbnb at risk.
How to invest in Airbnb’s IPO?
As Phillip Capital does not offer subscriptions of US IPOs, the most direct way for retail investors to participate is to trade over the counter after listing.
Investors who do not want to limit their exposure to a single company may look at ETFs that invest in newly-listed companies. Their options include First Trust US Equity Opportunities ETF (FPX.US) and Renaissance IPO ETF (IPO.US).
*Information accurate as of 5 December 2020.
Important Information: This report is prepared and/or distributed by Phillip Securities Research Pte Ltd (“Phillip Securities Research”), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgement. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSES Where the report contains research analyses or reports from a foreign research house, please note: (i) recipients of the analyses or reports are to contact Phillip Securities Research (and not the relevant foreign research house) in Singapore at 250 North Bridge Road, #06-00 Raffles City Tower, Singapore 179101, telephone number +65 6533 6001, in respect of any matters arising from, or in connection with, the analyses or reports; and (ii) to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, Phillip Securities Research accepts legal responsibility for the contents of the analyses or reports.
If Distribution is to Australian Investors This report is produced by Phillip Securities Pte Ltd and is being distributed in Australia by Phillip Capital Limited (Australian Financial Services License No. 246827). This report contains general securities advice and does not take into account your personal objectives, situation and needs. Past performance is not a reliable indicator of future performance. Please read the Disclosures and Disclaimers set out above. By receiving or reading this report, you agree to be bound by the terms and limitations set out above. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.