Airbnb Goes Public at $68 a Share and Closes Its First Day at $144.71

On 10 December 2020, Airbnb's shares began trading on the Nasdaq under the symbol ABNB, one day after the company priced its initial public offering at $68.00 a share. CNBC reported that the stock opened at $146 and closed at $144.71, more than double the offering price.

The offering covered 51,323,531 shares of Class A common stock, and Airbnb expected gross proceeds to the company of about $3.4 billion. Two parts of the deal were written for the people who rent out the homes: up to 3,500,000 shares reserved for eligible U.S. hosts and certain invited individuals to buy at the offering price, and a Host Endowment Fund holding 9,200,000 shares.

What Airbnb sold

Airbnb announced the price on 9 December 2020. Of the 51,323,531 shares, 50,000,000 were sold by the company and 1,323,531 by selling stockholders. The underwriters held a 30-day option to buy up to 5,000,000 more shares at the offering price. The prospectus, dated 9 December 2020, estimated net proceeds to Airbnb of about $3.3 billion, or $3.7 billion if the underwriters took every additional share.

CNBC put Airbnb's market value at the first day's close at about $86.5 billion and the day's gain at more than 112%.

What hosts were offered

The directed share program reserved up to 3,500,000 shares, or 7.0% of the shares Airbnb itself offered, for sale at the offering price. At $68.00 a share, 3,500,000 shares came to $238 million of stock. The prospectus named two groups of buyers: eligible U.S. hosts who hosted on the platform in 2019 or 2020, and certain individuals identified by Airbnb's officers and directors.

The conditions for hosts were specific:

• A host had to live in the United States.
• By 1 November 2020, the host had to have accepted a reservation that began, or was scheduled to begin, in 2019 or 2020.
• Airbnb employees were not eligible.
• If demand exceeded the shares available, Airbnb said it might invite hosts by tenure, measured by the year they first hosted.
• Shares bought by hosts were not subject to any lock-up agreement. Shares bought by the other invited individuals were.

The residence rule left out most of the host base. Airbnb had more than 4 million hosts on 30 September 2020, the prospectus said, and 86% of them were outside the United States.

NPR reported on 12 December 2020 that thousands of hosts had received the invitation by email in November, under the subject line “Airbnb's Directed Share Program.” The longer a host had been active, the more shares the host could buy, NPR said. Airbnb first set the most a host could buy at 275 shares, then lowered the ceiling to 200 because demand was so strong.

NPR found that scores of hosts had discarded the email as unimportant, and that others put the decision off until the deadline had passed. One Los Angeles host told NPR he bought the full 200 shares, sold them all at $144 and made nearly $15,000. Airbnb declined to comment to NPR.

The Host Endowment Fund

Airbnb established the Host Endowment Fund in October 2020 as a wholly owned limited liability company, and in November 2020 it contributed 9,200,000 newly issued Class H shares, which carried no votes and converted into Class A shares, one for one, when sold.

The prospectus stated the purpose in one sentence: “We want hosts to share in our success, not merely for a single moment in time, but for as long as Airbnb exists in the world.” The goal, it said, was to support hosts through programs, initiatives and grants.

The terms left the timing and the choices with the company. Airbnb said it intended to make distributions every year, but not until the value of the fund's assets exceeded $1.0 billion. Distributions would be informed by proposals from hosts and made at Airbnb's sole discretion, by its board of directors or a board committee.

At the $68.00 offering price, 9,200,000 shares were worth $625.6 million. At the first day's close of $144.71, the same number of Class A shares was worth about $1.33 billion.

The year behind the listing

Airbnb went public in a year when the pandemic had cut deep into its business. For the nine months to 30 September 2020, the prospectus reported gross booking value of $18.0 billion, down 39% from a year earlier, revenue of $2.5 billion, down 32%, and a net loss of $696.9 million. In May 2020, the company announced a cut of approximately 1,800 employees.

Brian Chesky, Airbnb's co-founder and chief executive, spoke to CNBC on 10 December, ahead of the debut. CNBC reported that he was not too concerned about the valuation. He said he did not expect to worry much more than he had in April and May, when the company saw “our business drop 80% in eight weeks in the middle of a pandemic.”

The prospectus also showed where the money had gone before the pandemic. Of $38.0 billion in gross booking value in 2019, $31.3 billion was host earnings, $5.3 billion was Airbnb's service fees and $1.4 billion was taxes.

The dispute over refunds

The listing followed an argument between Airbnb and its hosts that began early in the pandemic. Under the company's extenuating circumstances policy, guests who had booked on or before 14 March 2020 and could not travel because of the pandemic were eligible for a full cash refund or, in some cases, travel credit. The prospectus said the cancellations caused lost earnings for hosts.

Airbnb's response was a $250 million commitment, most of it distributed by 30 September 2020. It covered reservations made on or before 14 March 2020 with a check-in date between 14 March and 31 May 2020, and it entitled eligible hosts to 25% of what they would have received under their own cancellation policies. In its list of risks, the company told investors that hosts would not be paid in full for guest cancellations and that some might take their listings off the platform. It added that it had not seen a material change in the number of active listings between December 2019 and September 2020.

CNBC reported that a Texas-based host had filed a class-action lawsuit in November 2020 alleging that Airbnb violated its contract with hosts by offering the refunds, and that Airbnb had said the suit was without merit. NPR reported that the share offer was seen as a peace offering to hosts who were still angry about the refunds.

What it meant for hosts

For a U.S. host who had accepted a qualifying reservation by 1 November 2020 and answered the November email in time, the listing was a chance to buy up to 200 shares at $68.00 with no lock-up. By the first day's close of $144.71, those shares were worth more than twice what the host had paid. A host who missed the deadline was too late, NPR reported.

For the 86% of hosts outside the United States, the directed share program was closed. Their stake in the listing was the Host Endowment Fund, which set no date for a first distribution and left each decision to Airbnb's board.

What every host gained was information. A public filing set out how many hosts Airbnb had, what hosts earned, what the company kept, and what it told investors about the risk that hosts would leave.

Sources

1. Airbnb, Inc. (investor relations press release), Airbnb Announces Pricing of Initial Public Offering (9 December 2020).
2. U.S. Securities and Exchange Commission (Airbnb, Inc. filing), Airbnb, Inc. prospectus, Form 424B4, dated December 9, 2020 (9 December 2020).
3. CNBC, Airbnb skyrockets 112% in public market debut, giving it a market cap of $86.5 billion (10 December 2020).
4. NPR (published by member station WFAE), They Ignored Or Deleted The Email From Airbnb. It Was A $15,000 Mistake (12 December 2020).