Needless to say, it has been a rough few weeks on the stock market and the world as a whole. The coronavirus pandemic has triggered a sell-off that has wiped billions off of the stock market, while Big Tech members such as Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) have been forced to review their guidance numbers.
And these are not even the worst-hit companies by a long shot. Travel companies such as Wynn (NASDAQ: WYNN) and Vail Resorts (NYSE: MTN) are experiencing huge drops, while airlines struggle to get money in at all. United (NASDAQ: UAL), Delta (NYSE: DAL), and American Airlines (NASDAQ: AAL) are among the worst affected by travel bans, while America’s largest exporter, Boeing (NYSE: BA), has been forced to take loans and put a freeze on hiring.
All of this could potentially spell disaster for one of the most hotly anticipated IPOs of the year: Airbnb.
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Airbnb’s financial woes
The last thing a company needs before going public is a pandemic that is shattering the market. Add on top of this the fact that Airbnb just recently announced that it lost upwards of $320 million in the first nine months of 2019, compared to a $200 million profit in the same period a year before.
So what went so wrong?
As a private company, we must unfortunately try and fill in much of the blanks for Airbnb, which is not under the same obligations as public companies to disclose financials. From what we are told, the accommodation hosting company is seeing costs grow faster than revenue. This is an instant red flag for investors, who have been wary of money-bleeding Unicorn stocks ever since the infamous WeWork fiasco last year, which saw the company abandon its IPO plans at the 11th hour.
Much of Airbnb’s increasing costs come from a $150 million investment into improving the safety of its platform, while sales and marketing costs have also skyrocketed due to planned expansions in new markets. Meanwhile, several cities are actually putting restrictions on or outright banning Airbnb’s presence in cities, with Dublin, Ireland, home of its European operations, making its opposition clear many times.
The havoc wrought upon the global economy has been felt worldwide, resulting in the first bear market in over 11 years, and two of the worst days on Wall Street since the Great Recession in the space of a week.
With travel largely restricted and people isolating themselves, Airbnb will be taking a massive hit. In China alone, where the company has made huge strides to expand, Airbnb is expected to take an 80% hit. That report was before the virus spread to Europe and the U.S., its two largest markets.
The company was also forced to introduce more flexibility in the cancellation fees it normally charges, which have been scrapped until at least June 1st as coronavirus panic spreads. This means that Airbnb won’t be charging the usual 14% cancellation fee it normally does, which could potentially cost the company millions.
The booking giant boasts 7 million accommodation hosts on its platform, with thousands reporting that business has dropped to virtually zero almost overnight, forcing price slashes and the loss of usual cuts taken from booking fees.
If that wasn’t bad enough, Airbnb now has a serious, Olympic-sized problem: the Olympics. Meant to be hosted in Japan this summer, Airbnb recently splashed out $500 million in sponsorship for the world’s largest sporting event in the hopes that it would help grow business in host cities and also encourage star athletes to endorse staying with them. Alas, there are now real concerns about the event, which draws in tens of thousands of athletes from hundreds of countries, as well as half a million spectators. Should it be canceled, it will be a lot of lost money for Airbnb.
So what about Airbnb’s IPO?
At this point, it would seem like insanity for Airbnb to go ahead with its plans to go public in 2020. Despite previous expectations that the company would directly list in the third quarter of the year, its latest financial struggles and the uncertainty surrounding the economy all add up to a truly awful time to go public.
It would be more prudent to get into damage control mode for now, assess how the coronavirus will impact business, make a plan for recovery and move on from there, making a 2021 IPO date seem much more realistic.
The world doesn’t need another WeWork scenario.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.