Airbnb has been an unlikely winner, especially given that it belongs to a sector most affected by the COVID’19 pandemic. The company has managed to tide over the COVID crisis and emerge stronger than ever. Not just that, it also pulled off an IPO right in the middle of the crisis, giving it a valuation of $90bn. However, the journey to this market capitalization has not been that smooth.
Humble beginning but innovative idea
In 2008, Airbnb’s founders Brian Chesky and Joe Gebbia, were looking at ways to make money from the apartment they lived in, since they were finding it difficult to pay its rent. They decided to rent a part of their apartment for $80. The idea gradually became a hit. Soon a third founder, Nathan Blecharczyk, joined in; and “Airbed and Breakfast” became “Airbnb”.
Business model — reshaping the way people stay
Airbnb offers a cheaper alternative to people looking out for hotel stays, with a homely touch. On the supply side, it helps people who have unutilized home space (room / part of the house) to earn extra income. Airbnb is an aggregator that earns service fees from guests and hosts on every booking. It does not own any hotels and hence remains asset-light. The model is a hit. According to website Investopedia, “Airbnb has more than 7mn listings in 200 countries. The site has more than 150 mn users, with an average of 6 renters checking into an Airbnb-listed property every second.”
2020 –year of scare and succor
The year 2020 dealt a massive blow to travel and tourism the world over. In the first quarter of CY2020, Airbnb reported PAT loss of $341mn, according to website www.craft.co. In the second quarter of CY2020, revenues plummeted 72% yoy with PAT loss of $576mn. But the company got its act together quickly, and took some swift decisions. It revamped its website and listed newer places, entire homes (for people who didn’t trust hotels enough given the situation) and niche-located places. People were looking to escape to remote places, away from cities to avoid crowds. Few months into the pandemic, people were looking for drive-down destinations, within 250-300 miles from their homes. The company also cut marketing costs, deferred non-urgent expenses and trimmed nearly 25% of its workforce. In the words of Airbnb CEO, Brian Chesky, “I did not know that I would make 10 years’ worth of decisions in 10 weeks”.
Subsequently, Airbnb reported revenues of $1.3bn in Q3CY2020 and most importantly, PAT of $219mn. It has not reported annual profits in any of its year of operations; however, the quarterly profit at such an adverse time speaks volumes about the company’s ability to steer its performance going ahead.
Quarterly Revenue and PAT trends
Airbnb’s stock market debut has been well received so far
Airbnb Share price ($)
Source:- Yahoo Finance
Not just recovery but a strong listing as well
After the dramatic turnaround in Q3CY2020, Airbnb went public, pricing its share at $68, valuing the company at $47bn. The company’s stock debuted on stock exchanges on 10th December 2020, gaining 113% on the first day. The last closing of Airbnb share price on 5th January, 2021 was $148 at market cap of $89bn. The strong response to Airbnb’s IPO is a testimony that investors believe travelling will start soon, albeit with limitations. CY2021 is expected to be the year of normalization. Airbnb, with its 7.4mn listings, is well-positioned to drive this recovery.
Click here if you wish to invest in similar stocks with high growth potential in Indian stock market.