Airbnb’s comeback from near-distressed company to red hot initial public offering is one of the most extraordinary tech stories of the year. For investors, the San Francisco travel platform is now a way to bet on the world returning to normal after the pandemic. But there is a problem that even a vaccine cannot solve. The bigger Airbnb grows, the more unhappy many key external groups become.
In fact, Airbnb is a perfect example of the conundrum faced by all businesses whose success imposes burdens on the wider community. Think of the neighbours who live beside popular Airbnb rental properties and complain about the noise of wheelie suitcases trundling back and forth. Or the small guesthouses and B&Bs that must compete with Airbnb prices while complying with regulations the tech company can sidestep. Or city regulators that accuse Airbnb of pricing out local homebuyers in favour of short-term holiday lets.
Asking for forgiveness instead of permission, or neither, is standard for an ambitious start-up. But scrappy resourcefulness looks more sinister in a big business. As Airbnb completes its initial public offering — the buzziest in a year of big deals — these third-party tussles should not be ignored.
Some fights have been very close to home. Airbnb’s distinctive headquarters is modelled on a number of the platform’s popular listings, meaning it is full of the quirky wallpaper and cosy furnishings that make up the quintessential Airbnb aesthetic.
But the design, intended as flattery, came off as creepy to some of its own hosts. A French couple were so unhappy that a multibillion-dollar tech company’s HQ contained a replica of their home that they told BuzzFeed they felt as though Airbnb was “branding their company with our life”. Airbnb no longer copies homes without their owners’ say-so.
The IPO is Airbnb’s chance to define itself more positively. Like many tech companies, it combines a cute origin story with gargantuan growth. What began as two renters offering space on an airbed has become the world’s fourth largest accommodation business, by rooms booked per night. It claims its potential market is worth $3.4tn.
The listing documents make it clear that Airbnb is marketing itself as a socially responsible company. It devotes large chunks of text to the work that it does to “serve the communities in which we operate”.
Such virtue signalling is important. When rideshare company Uber went public it was fighting multiple regulatory fires, which weighed on the share price. Airbnb’s policy team, led by Bill Clinton’s former political adviser Chris Lehane, has tried to smooth such problems ahead of the listing. As of October 2019, 70 per cent of the 200 biggest cities that the company operates in were regulated in some form.
Regulation can hamper growth. Listings in San Francisco halved after changes were made in 2018. But it can also offer reassurance to hosts and guests. Airbnb would have had a more difficult time recovering from the early days of the pandemic if it had fewer deals in place with cities.
So why is Airbnb still losing money? In the first nine months of 2020 it reported a net loss of $697m on revenue of $2.5bn. As a platform, it should not be particularly expensive to run: it has no flying car unit to fund, for example. Yes, lockdowns battered the travel sector: Airbnb’s $31bn valuation was knocked down to $18bn, and in May it laid off 25 per cent of its workforce. Yet even before the pandemic it made a loss.
The crisis seems to have imposed greater discipline. In addition, the speed of recovery has been remarkable. Sharp cost cuts and a rise in domestic bookings meant that by the third quarter, Airbnb recorded an unexpected profit. Analysts at equity research house Redburn believe that it could soon beat Marriott and Expedia to become the second biggest accommodation business behind Booking.com.
Investors will probably focus on this growth, not recurring losses. But costs will rise again if Airbnb starts promoting ancillary business lines again. Then there is Jony Ive, Apple’s former chief design officer turned Airbnb collaborator. His services, as yet undisclosed, will not be cheap.
This does not mean the stock will be a dud. Airbnb is a truly disruptive company that has unlocked extra income for homeowners and democratised holiday accommodation. But the float signals that Airbnb is a maturing tech platform, with all the scaled network advantages that confers. Social consent for its activities is about to become as conditional as it is for the rest of Big Tech.