Airbnb Files for Its IPO and Sets Aside Shares for Hosts

On 16 November 2020, Airbnb filed its registration statement with the US Securities and Exchange Commission, putting its finances on the public record ahead of a planned initial public offering. The Form S-1 said the company had applied to list its Class A shares on the Nasdaq Global Select Market under the symbol ABNB. The price range and the number of shares were left blank, and the Associated Press reported that day that Airbnb had yet to set a date for the offering.

The filing showed revenue of $2.5 billion for the first nine months of 2020, down 32% year over year, and a net loss of $696.9 million. For the people who supply the homes it carried two new things: a Host Endowment Fund holding 9.2 million shares, and a program that reserved stock at the offering price for eligible hosts in the United States.

What the books showed

Airbnb was losing money before the pandemic. In 2019 it generated Gross Booking Value of $38.0 billion and revenue of $4.8 billion, and still posted a net loss of $674.3 million. Of the $38.0 billion, $31.3 billion was host earnings, $5.3 billion was service fees for Airbnb and $1.4 billion was taxes.

An illustrative booking in the prospectus showed how one night divided. The host set a price of $100.00, paid $3.00 in host fees and received $97.00. The guest paid $116.00, including guest fees and lodging taxes.

Then came 2020. In the nine months to 30 September, Gross Booking Value was $18.0 billion, down 39% year over year. The company raised $2.0 billion in term loans in April and in May announced a cut of approximately 1,800 employees. The third quarter was the exception. CNBC, reading the filing, reported net income of $219 million on revenue of $1.34 billion, down nearly 19% from $1.65 billion a year earlier.

How Airbnb described its hosts

As of 30 September 2020, Airbnb counted more than 4 million hosts, 86% of them outside the United States, and 7.4 million available listings of homes and experiences, of which 5.6 million were active. Most hosts were small. At the end of 2019, 90% were individuals, and 79% of those individual hosts had a single listing.

The average host with at least one check-in earned $7,900 in the twelve months to 30 September 2020. The filing said active listings had held at approximately 5.6 million from the end of 2019 through September 2020, despite the fall in bookings.

The shares set aside for hosts

The Host Endowment Fund was set up in October 2020 as a company wholly owned by Airbnb and funded with 9.2 million shares of a new Class H stock with no voting rights. In their letter in the prospectus, the three founders wrote that “we created the Airbnb Host Endowment, an entity that we are seeding with over nine million shares of Airbnb company stock in order to provide support for hosts for as long as Airbnb exists.”

The filing set out the terms. Airbnb intended to make distributions to benefit hosts each year, but not until the fund's assets were worth more than $1.0 billion. Proposals from hosts would inform the choices, and the decision stayed with the company: “distributions will be made at our sole discretion as determined by our board of directors or a committee of our board of directors,” the filing said.

The second measure was a directed share program, which reserved shares for sale at the initial public offering price. Hosts who lived in the United States and had, by 1 November 2020, accepted a reservation that began or was scheduled to begin in 2019 or 2020 were potentially eligible. If demand exceeded the shares available, Airbnb said it might invite hosts by tenure. The number of shares in the program was among the blanks.

What it told investors about rules and lockdowns

Airbnb told investors that laws and rules on short-term rentals had limited, and might keep limiting, what hosts were able or willing to offer on its site. As of October 2019, approximately 70% of its top 200 cities by revenue had some form of regulation. Listings in New York City generated approximately 2% of its revenue in 2019, and the company said that revenue might be substantially reduced once new regulations requiring it to share host data with the city were implemented.

The filing also warned about the weeks in which it was filed. A new wave of infections in the fourth quarter of 2020 had brought strict lockdowns, in particular in Europe, and bookings in the most affected regions were falling as they had in March. Airbnb expected a greater year-over-year decline in bookings in the fourth quarter than in the third. What had held up, it said, was domestic travel, short-distance travel, travel outside its top 20 cities and long-term stays of at least 28 nights.

The refund dispute in the filing

The founders' letter said Airbnb had issued more than $1 billion in refunds under its extenuating circumstances policy when travel stopped, and acknowledged that this created problems for hosts. The company committed up to $250 million to hosts in response. For reservations made on or before 14 March 2020 with a check-in date between 14 March and 31 May 2020, the filing said, eligible hosts were entitled to 25% of what they would have received under their own cancellation policies.

Airbnb did not tell investors that this made hosts whole. “Because this commitment is limited in amount and timeframe, hosts will not receive full payment related to guest cancellations,” the filing said. It added that some hosts might remove their listings if they were not satisfied with the company's policies during the pandemic.

Hosts had already said as much. The AP reported that hosts were infuriated earlier in 2020 when Airbnb allowed guests to cancel for full refunds. CNBC reported that many hosts it spoke with complained they were not receiving the correct amounts, or any payments at all.

On 10 November 2020, the trade site ShortTermRentalz reported that a Michigan law firm had filed a class action lawsuit on behalf of US Airbnb hosts, alleging that Airbnb had improperly seized funds for Covid-19 cancellations. Those were allegations in a complaint, not findings, and the trade site said it had asked Airbnb for comment.

What it meant for hosts

In the second half of November 2020, the filing gave a host several things to check.

• The share program. A host who lived in the United States and had accepted, by 1 November 2020, a reservation for a stay in 2019 or 2020 was potentially eligible to buy stock at the offering price, with the host's own money and at a price not yet named.
• The endowment. It was not income to budget for. Nothing would be distributed until the fund's assets passed $1.0 billion, and the board kept sole discretion.
• The cancellation money. The 25% payment covered only reservations made on or before 14 March 2020 for check-ins from 14 March to 31 May 2020.
• The winter. Airbnb expected bookings to fall further in the fourth quarter than in the third, and named domestic trips, short-distance trips and stays of at least 28 nights among the demand that had held.
• The rules. Hosts in New York City had notice that new regulations would require Airbnb to share host data with the city.

Sources

1. US Securities and Exchange Commission (EDGAR), Airbnb, Inc. Form S-1 Registration Statement (16 November 2020).
2. Associated Press (published by PBS NewsHour), Airbnb details years of losses ahead of planned IPO (16 November 2020).
3. CNBC, Airbnb files to go public, turned a profit last quarter (16 November 2020).
4. ShortTermRentalz, Airbnb subject of class action lawsuit from Michigan firm (10 November 2020).