SAN FRANCISCO — Over the past decade, Airbnb has upended the travel industry, riled regulators, frustrated local communities and created a mini-economy of short-term rental operators, all while spinning a warm narrative of belonging and connection.
On Thursday, Airbnb sold investors on the story that it is a pandemic winner.
The company’s shares skyrocketed on their first day of trading, opening at $146 each, 115% above its initial public offering price of $68. That put Airbnb’s market capitalization at $101.6 billion — the largest in its generation of “unicorn” companies and more than Expedia Group and Marriott International combined.
Airbnb’s offering raised $3.5 billion, compared to DoorDash’s $3.4 billion, making Airbnb the biggest IPO this year.
The blockbuster offering came a day after DoorDash, a food delivery startup, also defied gravity on its first day of trading by surging 86% to a valuation of $68 billion. Both follow a string of other hot IPOs that together make 2020 the busiest year for U.S. public offerings since 1999, according to Renaissance Capital, which tracks IPOs.
The hair-bending offerings this week have raised talk of a new stock market bubble in the midst of a pandemic-induced downturn, as more than 947,000 workers filed new claims for state unemployment benefits last week. With interest rates low and fiscal stimulus goosing parts of the economy, investors have chased ever-riskier bets, driving valuations of unprofitable startups to levels that seem divorced from reality. Robinhood, a stock trading app that has seen usage spike in the pandemic, has also flooded the market with millions of day traders eager to get a piece of brand-name tech companies.
“There obviously is a tremendous amount of enthusiasm,” said Scott Kessler, an analyst at the research firm Third Bridge. “It’s just hard to really feel comfortable and confident about valuation levels.”
The exuberance is a sharp turnaround from last year, when a lackluster IPO from ride-hailing giant Uber and a failed IPO attempt from office company WeWork humbled the tech industry, leading to caution and layoffs at the beginning of 2020. The dismay intensified with the onset of the pandemic, with many startups cutting back in anticipation of a slowdown.
But over the summer, the tech industry surged and the stock market came roaring back. A wave of tech IPOs delivered gushers of cash to Silicon Valley startups, their investors, founders and employees. Airbnb’s valuation now tops Uber and approaches the level of Facebook at its IPO in 2012. Later this month, the e-commerce startup Wish, the game maker Roblox and the homebuying company OpenDoor also plan to go public.
Unlike the other startups, which have seen demand for their products soar in the pandemic, Airbnb spent most of the year reeling as people canceled their bookings. In the first nine months of the year, Airbnb brought in $2.5 billion in revenue, down from $3.7 billion a year earlier. It lost $697 million during that time, more than double last year.
In April, it raised emergency funding, closed certain side projects and shelved its IPO plans. In May, the company laid off a quarter of its roughly 7,600 workers.
To convince investors it belonged in the same category as “COVID winners,” Airbnb’s offering prospectus presented a grand vision. The financial document featured magazine-style spreads of guests and renters in beautiful settings. It argued that it had invented a new kind of travel while also providing economic stimulus, a cure for loneliness and spreading “healthy tourism.” And it unfurled a well-worn underdog narrative of resilience and redemption.
A letter signed by Airbnb’s three founders — Brian Chesky, the chief executive, and Joe Gebbia and Nathan Blecharzyk — included talking points Chesky has repeated in numerous interviews praising the clarity the crisis had given him. The company emphasized that its home rentals could cater to travelers taking road trips outside of cities and that its bookings began rebounding two months into the pandemic. The prospectus even argued that the pandemic had accelerated Chesky’s bold prediction that people would someday “live anywhere.”
Those messages resonated with investors. “People are interested in the name, not the financials,” said James Gellert, chief executive of Rapid Ratings, a provider of financial analysis. “This is a company that is going in the wrong direction today, from a financial strength perspective.”
The pandemic was especially difficult for Airbnb because it has largely had a rocket-ship trajectory that made it the toast of Silicon Valley. The company was founded in 2008 as a way to let people rent out an extra room, and quickly expanded to a network of 7 million home rentals around the world.
Airbnb embodies the past decade of highly valued startups that used gig work, smartphones and piles of venture capital to upend old industries, grow fast, put off going public and worry about profits later. Its rapid rise brought the idea of vacation homes — and tourists — into city apartments and residential neighborhoods. Its founders pitched messages of trust, community and living like a local.
“When we reflect back on meeting Brian, Joe and Nate, it was just their ability to tell a story of a world that is very different than what exists,” said Alfred Lin, an investor at Sequoia Capital and member of Airbnb’s board.
Along the way, Airbnb has faced regulations and stricter rules for home rentals. The company has grappled with safety concerns over parties thrown at its rentals, guests who trashed their places, fraudulent listings, hidden cameras and hosts who racially discriminated against guests.
Those challenges have persisted as business has returned in the pandemic. Parties have proliferated and neighbors to Airbnb listings have become more vocal in their complaints. Hosts have become angry with the company for overriding their cancellation policies during the pandemic. Cities have begun to explore stricter regulations.
Airbnb acknowledged those risks in its offering prospectus while emphasizing its ability to adapt in the face of disaster.
“There are not that many companies that can stare down the abyss of a global pandemic, where international travel is shut down, and figure out their way out of that,” Lin said.