Airbnb – Unfortunate brush.

Airbnb is not WeWork.

• Airbnb is being tarred with the WeWork, Uber and Lyft brush, but a closer look reveals a company that has already proved that it can make money.
• Whether the company is worth the $31bn it was valued at when it last raised money is a story for another day, but what is clear is that it is in a much better position to IPO than any of WeWork, Uber or Lyft.
• The Information (see here) has broken the news that the company swung heavily into loss-making territory in Q1 2019 mainly as a result of a 58% increase in sales and marketing to $367m.
• A 51% increase in product development and a 30 % increase in operational expenditure also played a role.
• This sounds eerily familiar but there are some critical differences that need to be taken into account.
  • First, History: Up to the end of 2018, Airbnb had, over its history, generated more cash than it had lost.
  • This can be seen in its balance sheet where at the end of 2018, there was more cash available than the company has cumulatively raised over its history.
  • The company has been profitable on an EBITDA (roughly equivalent to operating cash flow) basis in 2017 and 2018 explaining the cash balance.
  • This means that for 2019, the company has made a decision to invest heavily for the next stage of its growth which is why profitability has plummeted.
  • Given its cash position and history, it can comfortably afford to do this.
  • Second, competition: Airbnb is unopposed in its space.
  • This is critical because it means that there is no one breathing down its neck forcing it to cut its prices.
  • Instead, this will be governed by lessors and lessees and whether or not they are happy to swallow any increases in price that Airbnb decides to make.
  • This is a very different scenario to Uber and Lyft who are constantly at each other’s throats and WeWork whose clients can up and leave with plenty of other options to choose from.
  • Third, revenue: Airbnb is currently around a $1bn run rate per quarter and should the new investments begin to pay off, this should start to grow more quickly.
  • This shows that Airbnb is already a bigger company than WeWork which will make it easier to stomach the current valuation of $31bn.
• The net result is that Airbnb is in a much better financial position to begin thinking about IPO as it can point at its history and say with credibility that it can make money.
• This will give investors much more comfort around a period of losses while the company invests in the next phase of its growth which makes a successful IPO much more likely.
• Airbnb is no WeWork but the sins of its predecessors mean that it will be a sceptical and value-sensitive crowd that it has to sell itself to when it comes to IPO.
• There is nothing wrong with the company at all and so a successful IPO will all be about the valuation.