[REN #798] Airbnb Hosts Could Get IPO Shares

Picture of bedroom for Real Estate News for Investors Podcast Episode #798

Airbnb is joining the big leagues next year with an IPO. It had previously announced that it “might” go public this year, but the company has pushed that plan into next year. The experts say it’s probably due to an SEC rule-change request that would give Airbnb hosts an opportunity to participate in the IPO.

The San Francisco-based company announced its plan for a 2020 IPO in a brief statement, without a lot of details. It said, “Airbnb, Inc… expects to become a publicly-traded company during 2020.” That’s it. Nothing more. (1)

But the Wall Street Journal reported last year that Airbnb wrote to the SEC in support of a proposed rule change that would let it give shares to hosts while it’s still a private company. (2) Those shares would presumably increase in value when the company goes public, and reward high-performing hosts. CEO Brian Chesky had said, “We would like our most loyal hosts to be shareholders, but need these policies to change in order to make that happen.”

SEC Rule Change for Gig Economy

The SEC had solicited comments on the potential rule change due to the mushrooming growth of the gig economy. For decades, companies have only given those kinds of shares to employees, and big time investors. If the rule change happens, it could be quite a windfall for hosts to participate in an IPO as big as Airbnb. The company was reportedly valued at $31 billion after a funding round last year.

It’s not clear how the SEC would handle this kind of participation. But, the Wall Street Journal reports that SEC Chairman Jay Clayton has been working on ways to give mom-and-pop investors more access to private companies. He told the paper, the SEC is looking at a major overhaul of the rules that would protect smaller investors, and give them new investing opportunities.

Investing in an IPO can be risky. Unicorn start-ups Uber and Lyft went public this year, but they are losing money and their stock is not performing well. Unicorns are start-ups that have grown in value to more than $1 billion. Matt Kennedy of Renaissance Capital expects an Airbnb IPO to be more successful than Uber and Lyft however. He told the S.F. Chronicle, “Airbnb has something Uber and Lyft don’t have: a proven, sustainable business model.”

Quarterly Earnings Top $1 Billion

Right before Airbnb’s IPO announcement, it reported that second quarter earnings topped $1 billion. It also said that it’s the second time that revenue has hit this mark. It didn’t say how much of that was profit, but it did say that it had about 8.2 million guest arrivals from July 2018 to July 2019. It also said it had passed another big milestone — that it has more than seven million listings in more than 100,000 cities around the world.

Hosts Are Heart & Soul of Airbnb

It also highlighted the importance of its hosts, saying, “At Airbnb, we know that our success depends upon making sure our hosts are successful.” Also, “Hosts are and always will be the heart and soul of our community.” As of September 14, 2019, Airbnb says that hosts have earned more than $80 billion sharing their homes and living spaces on the website.

The company has also been embellishing its business model beyond its original home-sharing platform. It bought Hotel Tonight in May of this year to help guests find lodging at the last minute. It bought Luxury Retreats in 2017 to provide higher quality choices to guests. And, it is capitalizing on a trend for activity-based vacations by adding one-of-a-kind “experiences,” multi-day “adventures,” and “restaurants” to its platform.

The New York Times reported, technology companies usually keep their IPO plans a secret, and that Airbnb’s statement about going public next year is unusual. (3)  A few anonymous individuals told The Times that Airbnb made that announcement because it wants to offer shares to hosts, but under securities law, it can only do so if it also announces the plan to the public.

This could be a big event for people doing business on Airbnb, but we may have to wait until next year to learn all the details.

Links:

(1) Airbnb Press Release

(2) Wall Street Journal Article

(3) NYT Article

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