Airbnb Inc. could delay plans to hit public markets in 2020 as it surveys the damage from the new coronavirus, which has curbed global travel and tanked stocks for some of the biggest companies in the tourism industry, experts said.
The California-based company, which has listings in more than 220 countries and regions, announced in September 2019 that it expected to become a publicly traded company sometime in 2020. There were reports that Airbnb could start the process in March or April and consider a direct listing over an IPO.
But the outbreak of the virus, which causes a respiratory disease known as COVID-19, now has experts questioning whether the vacation rental company will follow through this year on plans to go public. Airbnb did not respond to requests for comment and has not announced any plans to delay a possible public trading debut.
Travel companies have largely suffered under the virus, with the S&P 500 Hotels, Resorts & Cruise Lines subindex falling 34.9% year-to-date as of March 6 as bookings for hotels and cruises decline. And other companies that intended to go public in the coming months have postponed their plans as the outbreak has sent global markets plunging.
Airbnb has waived cancellation fees for guests who book in areas of high risk to virus exposure through April 1.
Experts say Airbnb will need to figure out how the virus affects its financials and whether the current market would be receptive to its trading debut as investors focus on managing their current holdings before turning to newly public companies.
"I'm guessing they're going to try to get a handle on [their business] because moving forward with an IPO, they're going to need to have as good a grip as they can get on what the outlook is for the company," said Kathleen Smith, principal at Renaissance Capital, provider of institutional research and IPO ETFs.
Still, Airbnb is likely under little pressure to go public immediately as the company has enough capital and cash flow to delay an IPO, experts say. Airbnb raised about $4.4 billion through 15 funding rounds since launching in 2008 and has a valuation of $35 billion, according to Crunchbase.
Waiting game, uncertainty
The challenge for Airbnb is that the full impact of the travel reductions related to COVID-19 has not yet been seen, said Jeremy Swan, managing principal for CohnReznick's financial sponsors and financial services industry.
"There's sure to be an impact from the financial perspective," Swan said in an interview. "We just don't know what that's going to look like yet."
Part of the IPO process is telling a narrative about the company, and the uncertainty will make that difficult for Airbnb, according to Swan.
Airbnb's management team should focus on maximizing its sale value, said Paul Condra, lead analyst for emerging technology research at PitchBook.
"That means not listing at a time when sentiment and fundamentals are so negative for the travel industry," he said in an email.
Airbnb was expected to tap the public markets at the end of the first quarter of 2020 or early in the second quarter, Smith said in an interview.
"Now we have coronavirus and we have companies that are lined up, but they know they can't get out into the market yet because the market is too wary and not looking at new issues," she said. "We have to get more stability in the market."
If investors do not see positive returns on current investments, they are not going to look at new ideas, Smith said.
The 2020 presidential election is also impacting timelines for IPOs since companies and investors prefer completing transactions ahead of elections to get ahead of any future uncertainty.
"We just don't know what's going to happen," Swan said. "I think there's a lot of pent-up uncertainty in an election."
Travel cutbacks, sector impacts
With travel reductions, it also would not make sense for Airbnb to begin a roadshow now to present to potential investors.
"A lot of people are not keen on traveling right now," Swan said.
Large-asset managers also have restricted employee travel, he added.
"It's certainly making it a lot harder to get transactions done when travel has been significantly limited," Swan said. "There are a number of factors to get IPOs done, not just the volatility in the market."
Travel companies that are already public are taking hits to earnings and bookings amid the outbreak. Shares of hotel chain Marriott International Inc. have fallen 24.5% year-to-date and its revenue per available room in China fell nearly 90% year over year in February, the company said on its Feb. 27 earnings call. Stocks of cruise lines have dropped dramatically since the outbreak began, with Royal Caribbean Cruises Ltd. issuing four profit warnings.
The coronavirus has impacted other companies that planned to go public this year, including Warner Music Group Corp. and shoe company Cole Haan Inc., according to Reuters. Both companies decided after the S&P 500 Index lost nearly 12% of its value, Reuters reported.
Smith said companies looking to go public value the business based on their peers and then put a discount on it to IPO. In a normal market, she said, there might be 13% volatility so the valuation is given a 13% or 15% cut.
"But now the volatility's such that it's over 30%," Smith said, citing the volatility index. Pricing an IPO in that kind of market requires an even greater discount than normal, she added.
Impact on Airbnb
Airbnb has enough capital that a delay in going public would do no harm in the long term, experts said.
"It probably would not hurt the company, but it may hurt returns that investors are expecting to get from their investment in Airbnb," Smith said. "My guess is investors may be getting antsy to see a liquidity and exit for Airbnb."
Airbnb posted a net loss of $322 million for the nine months to September 2019, compared with a net profit of $200 million year over year, The Wall Street Journal reported. Airbnb has released little data on revenue, according to the newspaper. However, a person close to the company said its third-quarter 2019 revenue increased to $1.65 billion, up almost $400 million year over year.
The upside is that Airbnb has the luxury to be able to wait out the outbreak and delay its IPO since they have capital and cash flow, Swan said.
Condra said the impact on Airbnb might have been worse if they had already gone public.
"At least as a private company, management can take evasive action without being under a public microscope," he said.
Direct-listing plans mean Airbnb apparently does not need the cash from offering new shares through an IPO, so a delay in going public would not negatively impact Airbnb too much, Condra said.
"While it does mess things up for investors with timelines they need to stick to, I would expect shareholders would prefer the company wait for markets to recover and take the time to get the business back on track as opposed to pushing through an IPO that may not be necessary," he said.