Airbnb may be another overvalued “unicorn,” but it’s no WeWork.
The Information this morning reported new Airbnb financials — indicating a massive increase in operating losses — that immediately call Airbnb’s future into question. Precisely, Airbnb lost $306 million on operations on $839 million in revenue, namely as a result of marketing spend, in the first quarter of 2019. In total, Airbnb invested $367 million in sales and marketing, representing a 58% increase year-over-year, in Q1. The company is gearing up for a major liquidity event next year and is making a concerted effort to rake in new customers, as any soon-to-be-public business would.
Given WeWork’s sudden demise, coupled with Uber and Lyft’s lukewarm performances on the stock markets, many have wondered how Wall Street will respond to Airbnb’s eventual IPO prospectus. Will money managers have an appetite for another over-valued Silicon Valley darling? Or will the market compete like mad for shares in the massive home-sharing marketplace?
But Airbnb, again, is no WeWork, and I wager Wall Street will have a much friendlier approach to its offering. For one, Airbnb’s co-founder and chief executive officer Brian Chesky isn’t dropping $60 million on private jets — I don’t think. CEO behaviors aside, Airbnb has more capital in the bank than it has raised in its entire 11-year history, which is a whole lot of money. This is all according to a source who is familiar with Airbnb’s financials and shared this detail with TechCrunch following The Information’s Thursday morning report. As for Airbnb, the company told TechCrunch, “we can’t comment on the figures, but 2019 is a big investment year in support of our hosts and guests.”
Airbnb’s CEO Brian Chesky speaks at TechCrunch Disrupt SF 2014
Airbnb has attracted more than $3.5 billion in equity funding at a $31 billion valuation and has even more locked away in its bank account. Additionally, Airbnb has an untouched $1 billion credit line, the source said. Presumably, the referenced credit line is the 2016 $1 billion debt financing from JPMorgan, CitiGroup, Morgan Stanley and others.
Moreover, Airbnb has been “cumulatively” free cash flow positive for some time, meaning that it’s seen more money coming in than going out during recent quarters, according to our source. It has been reported that Airbnb surpassed $1 billion in revenue in the second quarter of 2019 and in the third quarter of 2018, but we’re guessing the business did not top $1 billion in Q4 of 2018 or Q1 of 2019 because it if had, that information would probably have been “leaked.”
Finally, Airbnb has been profitable on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis for two consecutive years, the company announced in January. Gross bookings, meanwhile, are growing, as is Airbnb’s business offering and its experiences product.
Why does any of this matter, you ask?
Because Airbnb is gearing up for an initial public offering or direct listing, and any numbers released in the next few months may have a substantial impact on the company’s stock performance. Right now, everyone wants to compare Airbnb to another well-known “unicorn,” WeWork, which became a cautionary tale overnight after reports detailed the chief executive officer’s eccentric behaviors and outlined extremely unfavorable financials (losses of nearly $1 billion). Given the similarities between WeWork and Airbnb (two historically unprofitable unicorns born amid the gig-economy boom backed with billions in venture capital funding and eye-popping valuations), it’s easy to draw parallels.
As the numbers above show, the two businesses are quite dissimilar. Most importantly, Airbnb has a war chest. WeWork, which has pulled its IPO filing and replaced its CEO with two seasoned tech executives, is rapidly running out of cash due to mounting losses. WeWork, according to the latest reports, could run out of cash in November if it doesn’t receive a much-needed lifeline from one of its deep-pocketed investors, cough SoftBank cough. The company could fold, or be sold for parts — if it does, I don’t think anyone would be surprised.
Airbnb has integrated technology into its business model much more so than WeWork, which is in essence a traditional real estate business that buys properties and leases them to individuals and companies. Airbnb, for its part, uses machine learning and artificial intelligence to improve search capabilities and optimize pricing on its home-rental tool.
This isn’t to say Airbnb is worthy of its $31 billion valuation. It’s likely worth less than that and, like many tech companies today, was overvalued by venture capitalists who have long gifted tech-enabled startups the same valuation multiples of software businesses. Read Fred Wilson’s great piece on this phenomenon, which may be finally coming to an end, thanks to the WeWork Saga of 2019.
Moving on to my final point: Airbnb is very likely to go public via a direct listing next year (if you’re unfamiliar, we’ve written a lot on the subject), given the company’s global brand and balance sheet. Slack, for reference, was lauded for its hefty balance sheet ahead of its 2019 direct listing. At the time, the workplace communication software business had $800 million on its balance sheet.
It’s not uncommon for a company to have money ready to spend — this is how Airbnb was able to lock down its high-priced acquisition HotelTonight earlier this year. Having cash on hand allows businesses to invest in M&A and prepare for unfriendlier times, i.e. a recession that is supposedly coming any minute!
Following Slack and Spotify’s debuts, direct listings are becoming increasingly popular, both as a result of high-profile examples and because notable venture capitalists continue to evangelize the innovative and new route to the public markets.
Airbnb hasn’t said publicly whether it will pursue a direct listing, but the company has confirmed it plans to go public in 2020. We likely won’t know for a few more months which route it plans to take, but one thing is for certain — Airbnb does not need any more money.