Will Airbnb Flip the Initial Public Offering Playbook Yet Again?

The on-again, off-again prospect of Airbnb going public during coronavirus-ravaged 2020 is on again — potentially.

Internal discussions about Airbnb trading on the stock market are under way at the home-sharing behemoth, Axios reported Tuesday, and Airbnb co-founder and CEO Brian Chesky told Bloomberg a couple of days earlier, “We’re not ruling out going public this year and we’re not committing to it.”

Airbnb announced in 2019 that it intended to go public in 2020, and at the time Skift reported that the likely scenario would be a direct listing instead of an initial public offering. That’s because Airbnb’s primary motivation would be to enable employees to cash in their stock options, it didn’t need to raise money, and could avoid millions of dollars in bankers’ fees.

But with the markets rebounding, initial public offerings heating up, and vacation rental bookings surging this summer in the United States, Chesky could be again breaking out the S-1 paperwork that he was working on in March when the pandemic struck.

Skift contacted three high-profile tech investors, all of whom declined to be identified, and they disagreed on whether Airbnb might try an initial public offering or a direct listing if it decides to attempt to go public.

“Considering that they (Airbnb) were in financial distress a few weeks ago and had to raise expensive financing, combined with the fact that by all accounts they were burning cash prior to the pandemic, they probably will opt for a primary offering in order to raise additional capital,” said one investor, referring to an initial public offering.

This investor added he didn’t know what valuation Airbnb could generate. Airbnb’s valuation has undoubtedly plummeted since the $31 billion it commanded when it raised funds in 2017.

A private equity investor concurred that an initial public offering was the most likely strategy for Airbnb considering that it secured $2 billion in financing to get through the coronavirus crisis. CNBC reported that Airbnb needs to pay 9 percent interest on a $1 billion batch of debt, and around 11.5 percent on the debt portion of another $1 billion round.

But a third prominent investor said Airbnb “just topped off the bank,” didn’t need to raise additional money, and would therefore execute a direct listing instead of an initial public offering. He said Airbnb could issue stock to pay off the debt.

Without any inside knowledge about Airbnb, Jay Ritter, a finance professor at the Warrington College of Business in Gainesville, Florida, said Airbnb might be able to set a precedent by doing a direct listing and raising capital because the New York Stock Exchange has applied to the Securities and Exchange Commission for permission to enable companies to do just that.

“The motivation for doing a direct listing remains the same: avoid the excessively high costs of an IPO,” Ritter told Skift. “Last week, ZoomInfo Technologies, Warner Music Group, and Shift4 Payments all went public and left, between them, more than $1 billion on the table.” He was referring to the share value at the end of the first day of trading versus the share value at the time of the offer price.

Even a month ago, it might have been heresy to suggest that Airbnb might still go public in 2020, but conditions have changed.

“It makes a lot of sense for Airbnb to try and go public this year if it is able to do so at a favorable price,” said Seth Borko, senior research analyst at Skift Research. “At the end of the day, Airbnb wants to raise cash and offer liquidity to its existing investors and employees. Whether it takes out convertible debt and then repays bondholders after a direct listings or raises capital directly in an IPO are just two means to the same end.”

Borko added that direct listings are still somewhat experimental, “but if Airbnb wants to try it out there’s nothing wrong with that.”