Why Airbnb’s incredibly successful IPO was a maverick move
Airbnb’s IPO decision in a sea of business gloom
But Airbnb had some strategic advantages, the first being its tech-based business model. Unlike other leisure and holiday businesses – such as hotels and airlines – Airbnb does not need to spend large amounts of money on the cost associated with the upkeep of its fixed assets. Instead, Airbnb can successfully pass on the risk of such rigid payment obligations to its “hosts” – the property owners. It then retains the profitable parts of the business for itself with enough agility to face systematic disruptions like Covid-19.
The company’s second advantage is that it has become a well-known name in the world of travel, building a strong brand and a loyal customer base. If we compare the sales in the first nine months of the year for 2019 and 2020, everyone suffered a drop, but the decrease was least (in percentage terms) forAirbnbamong all its close rivals like booking.com and Expedia.
In addition to its competitive status, ongoingmarket changesalso created confidence for Airbnb’s IPO. Towards the end of 2020, markets across the world started reviving. South-East Asian, African, and Latin Americantravel destinations reopened for business, asvaccines for COVID-19were announced. This bolstered confidence and hope for a return of “business as usual” and reflected in the immediate increase in the valuation of shares among the travel industry. The shares of Easyjet and Jet2 went up by more than 40%.
Airbnb also managed to quieten its critics and avoid aggravating local housing regulators. However, adverse local regulatory reactions isn’t specific to Airbnb. Amazon, Facebook, and Uber have all had their own stories. Given the combined bargaining power of the Silicon Valley giants, there are limited chances that any worldwide systematic regulatory change will happen in the near future.
COVID-19 and Airbnb
The travel and leisure industry in the UK were the main casualties of the pandemic. Airlines, hotels, and holiday homes saw their revenue streams switched off almost overnight. The travel industry had already bid farewell toSTA Travel, an agency for cheap flights. The latestUK travel statisticsindicate that the effect of the pandemic on the travel industry may result in further business collapses. TheUN World Tourism Organization(UNWTO) estimates that the travel and tourism sector has lost export revenues to the tune of US$910 billion to US$1.2 trillion.
As Airbnb enabled peer-to-peer consumption of travel accommodation orexperiences, it also suffered its fair share of financial stress. In May 2020, it decided to sack 1,900 people from their jobs – almost a quarter of itsworkforceand its market valuation fell from US$31 billion in 2017 to US$18 billion in April 2020. But with a market value that touchedUS$60 billion, minutes after trading begin on December 10, it seems to be poised for some rapid growth.
Hope for “normal”
The travel and tourism industry is hopeful for a much faster recovery than other market segments. There are two reasons for this: first, there is a psychological demand for travel and holidays after a very long lockdown.
Second, the availability of cash. A significant part of the working population saved a large portion of their income by not spending on commuting and leisure costs.
The Airbnb IPO seems to be boldly positioned right at the expected beginning of the recovery in Europe and the improving market conditions encouraged last-minute share issue price.
This successful IPO has brought in the required cash to feed its relentless growth, but more than that, it has proved the quality of its strategic leadership. It has also established its dominant position in the online leisure and travel business for years to come, further boosting its competitive advantage. Of course, we must remember that these are just predictions and only time will tell.
For the markets in general, this IPO is a watershed movement that signifies the transformation towards an economic recovery based on hope for a return to “normal” life.
This article byOlga Cam, Lecturer in Accounting,University of SheffieldandMohammad Rajjaque, Teaching Associate in Accounting and Finance,University of Sheffieldis republished fromThe Conversationunder a Creative Commons license. Read theoriginal article.
Story byThe Conversation
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