SAN FRANCISCO – For the past decade, Airbnb has turned the travel industry on its head, angered regulators, frustrated local communities, and created a mini-economy of short-term landlords, all while filming a warm narrative of belonging and connection.
On Thursday, Airbnb sold investors an even more unlikely story: that it was a pandemic winner.
The company's shares skyrocketed on the first day of trading, rising 113 percent above the $ 68 market price to close at $ 144.71. That put Airbnb's market cap at $ 100.7 billion – the largest of its generation of “unicorn” companies and more than Expedia Group and Marriott International combined.
Airbnb's offering raised $ 3.5 billion, making it the largest I.P.O. this year.
Just a day earlier, DoorDash, a food delivery startup, defied gravity by grossing $ 3.4 billion on its first day of trading, when the share price rose 86 percent to $ 68 billion. Both debuts followed a number of other hot I.P.O.s making 2020 the busiest year for public offerings in the U.S. since 1999, according to Renaissance Capital, the I.P.O.s.
This week's hair-raising offers sparked talk of a new stock market bubble amid a pandemic-induced downturn as more than 947,000 workers filed new claims for state unemployment benefits last week. With low interest rates and fiscal stimulus hurting parts of the economy, investors have been chasing riskier bets, pushing valuation of unprofitable startups to levels that seem disconnected from reality. Robinhood, a stock trading app that has grown in use during the pandemic, has also flooded the market with millions of day traders eager to win a piece of branded tech company.
James Gellert, executive director of Rapid Ratings, a provider of financial research, said the "absurd" ratings were "the extreme exuberance and unprecedented liquidity in the market." He warned that the mood was changing quickly and I.P.O. Investors "an investment hangover in the coming months."
Airbnb CEO Brian Chesky said in an interview that he felt a "wave of excitement" when introducing Airbnb to investors but not focusing on the company's near-term stock movements.
"I can't control the stock price, but I can control history," said Chesky, 39, whose stake in Airbnb is now $ 11.1 billion.
The exuberance is a sharp turn from last year when a lackluster I.P.O. from Uber and a failed I.P.O. Office firm WeWork's attempt humiliated the tech industry, leading to caution and layoffs in early 2020. The consternation heightened as the pandemic broke out, and many startups declined in anticipation of a slowdown.
But as the summer went on, the tech industry soared and the stock market returned. A wave of Tech I.P.O.s provided startups from Silicon Valley, their investors, founders and employees with lots of money. Airbnb's rating now surpasses Uber's, approaching Facebook's level at its I.P.O. E-commerce start-up Wish, game maker Roblox and home buying company OpenDoor are also planning to go public this month.
Unlike the other startups that saw demand for their products soar during the pandemic, Airbnb fluctuated for most of the year as people canceled their bookings. In the first nine months, Airbnb generated revenue of $ 2.5 billion, compared to $ 3.7 billion in the previous year. In that time, it lost $ 697 million, more than doubling last year.
In April she raised emergency funding, closed certain side projects and presented her I.P.O. Plans. In May, the company laid off a quarter of its approximately 7,600 employees.
To convince investors that it belongs in the same category as the “Covid Winners”, Airbnb's prospectus offered a great vision. The financial document contained a guest and tenant style magazine in beautiful surroundings. It argued that it invented a new way of traveling while providing economic impetus, a cure for loneliness and the spread of "healthy tourism". And it unfolded a well-worn underdog tale of resilience and redemption.
Economy & Economy
Dec. 10, 2020, 4:09 p.m. ET
A letter signed by the Airbnb founders – Mr Chesky, Joe Gebbia and Nathan Blecharzyk – contained discussion points that Mr Chesky repeated in numerous interviews to praise the clarity that the crisis had given him. The company stressed that its home rentals may be suitable for travelers traveling outside of the cities and that its bookings picked up again two months after the pandemic began. The prospectus even argued that the pandemic had accelerated Mr. Chesky's bold prediction that people would one day "live anywhere".
These messages were very well received by investors. "People are interested in the name, not the finances," said Gellert. "This is a company that is going in the wrong direction financially today."
The pandemic was especially difficult for Airbnb as it had mostly a rocket trajectory that made it the toast of Silicon Valley. The company was founded in 2008 to give people the option to rent an additional room and quickly expanded to a network of seven million rental apartments around the world.
Airbnb embodies the last decade of highly valued startups that used gig work, smartphones, and loads of venture capital to cheer old industries, grow fast, delay IPOs, and worry about profits later. Its rapid rise brought the idea of vacation homes – and tourists – to city apartments and neighborhoods. The founders brought messages of trust, community and living like a local.
"When we think about meeting Brian, Joe and Nate, it was just their ability to tell a story of a world that is very different from the one we have," said Alfred Lin, investor at Sequoia Capital and a member of Airbnb Board of Directors.
Along the way, Airbnb is grappling with regulations and stricter home rental rules. The company has addressed security concerns regarding parties thrown on its rentals, guests who vandalized their seats, fraudulent ads, hidden cameras, and hosts who racially discriminated against guests.
These challenges have continued as business has returned in the pandemic. The parties have multiplied, and the Airbnb listing neighbors have grown louder in their complaints. The hosts have gotten mad at the company for overriding their cancellation policy during the pandemic. Cities have started investigating stricter regulations.
Airbnb recognized these risks in its offering prospectus while highlighting its adaptability in the face of disasters. In the interview, Mr. Chesky said that Airbnb didn't expect business travel or mass tourism to bounce back anytime soon, but that the company is well positioned to serve other types of guests.
He mentioned how Airbnb could serve those looking for outdoor activities and extended stays, as well as students who couldn't return home.
"If there was ever a moment where we would ever show that we are adaptable, it would be a pandemic," Chesky said.