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Micro Cap
Market Cap £25.5m
Enterprise Value £34.9m
Revenue £25.8m
Position in Universe 1165th / 1957

NEWSMAKER-How Airbnb's CEO succumbed to an IPO he resisted

Fri 20th November, 2020 12:00pm
By Joshua Franklin and Anirban Sen
    Nov 20 (Reuters) - Airbnb CEO Brian Chesky resisted calls
from his investors for years to follow the lead of other Silicon
Valley unicorns and take the home rental startup public, as he
pursued his dream of turning it into a one-stop shop for leisure
and travel. He is now pressing ahead with a stock market debut
just as the COVID-19 pandemic hits its peak.  
    Airbnb aims to complete its initial public offering (IPO) on
Nasdaq next month, 12 years after Chesky founded the company
with former roommates Joseph Gebbia and Nathan Blecharczyk. The
long road to the IPO frustrated many investors and employees
waiting for an opportunity to sell their Airbnb shares in the
stock market.
    Reuters interviews with more than a dozen Airbnb executives,
advisers, investors and employees show that Chesky put IPO plans
on the backburner as he sought to turn the company into a
full-fledged travel agency, adding "experiences" so guests could
participate in vacation activities such as book-guided tours of
local attractions. By increasing spending on these ventures, he
sacrificed Airbnb's profitability, the IPO prospectus shows.
    It took years of pressure from investors and employees, as
well as a deterioration in Airbnb's finances during the
pandemic, for Chesky to give up on his expansion plans and
commit to a listing. Airbnb is poised to seek a valuation of
around $30 billion, less than the $50 billion that investment
bankers told Chesky the company could have been valued in a
listing two years ago.
    "Chesky is one founder where it wasn't his dream to go
public but it's part of the process of satisfying all your
stakeholders and rewarding them," said SV Angel founder Ron
Conway, an early investor in Airbnb and a supporter of Chesky
who liaises with him regularly.
    Airbnb declined to comment, while Chesky declined to comment
through a spokesman.
    Airbnb officially reached technology unicorn status in 2011,
when it crossed the $1 billion valuation threshold. As Airbnb
raised more money from investors, Chesky resisted taking it
public. He split his time between running the company, visiting
properties and developing experiences for guests.
    "He now has a proper house, but for years he would go and
try out a new Airbnb every night. He would stay for a few nights
in each one. In the trunk of his car he would have his
belongings," Conway said.
    Investors were growing frustrated with the IPO's
elusiveness. In 2017, Lawrence Tosi, who had joined Airbnb as
chief financial officer two years earlier from buyout firm
Blackstone Group Inc  BX.N , guided investors in a $1 billion
fundraising round that a listing was likely in the next 12
months, according to people familiar with the discussions.
    Tosi also initiated talks with investment banks about a
stock market debut that would value Airbnb at between $45
billion and $50 billion, one of the sources said. He was doing
this at the behest of Chesky, who had asked Tosi to have Airbnb
ready for an IPO by the first quarter of 2018, the source added.
    But then Chesky pulled the plug on Tosi's IPO preparations.
He published a memo describing Airbnb as focused on an "infinite
time horizon", a clear sign he had decided to eschew the
quarterly financial disclosures of a publicly listed company.
    Tosi clashed with Chesky, arguing the future of Airbnb lay
in its core business of vacation rentals and business travel,
and that putting off the IPO to expand the experiences segment
would waste money and leave the company worse off. The spat
resulted in Tosi's departure from Airbnb in 2018.
    Chesky kept the prospect of an IPO alive for investors but
never firmed up plans until September 2019, when Airbnb
announced it would go public sometime in 2020. In signing off on
that statement, Chesky was responding to the frustration of many
of his employees, who had been granted stock options expiring in
early 2021 and would lose out if the company was not public and
they could not sell shares by then, the sources said.
    Then in March, the novel coronavirus outbreak shook Airbnb.
Bookings hit rock-bottom and guests canceled reservations. 
    Chesky decided to raise money again. Yet previous
fundraising rounds were based on the prospects of rapid growth,
not a crisis. Had the San Francisco-based company gone public,
it could have raised money through a stock sale in the open
    The option that was left was debt, and it was expensive.
Airbnb secured $2 billion in term loans from several investment
firms, including Silver Lake and Sixth Street Partners, at a
blended annual interest rate of more than 9%. By comparison,
ride-sharing company Uber Technologies Inc  UBER.N , which also
relies on the gig economy, inked a $1.5 billion term loan in
2018 at a 6.2% interest rate. 
    Some of Chesky's grandiose plans, including making Airbnb TV
shows and movies, were out the window, as he laid off a quarter
of the workforce and slashed the marketing budget.
    He focused on revitalizing Airbnb's core home listing
business by transitioning from city apartments to vacation homes
that people wanted to rent in the pandemic. The turnaround
worked, and Airbnb posted a profit of $219 million in the third
    Yet it has never been profitable on an annual basis, and
lost almost $700 million in the first nine months of the year, a
far cry from its performance two years ago, when it was only $17
million away from being profitable.
    At an Airbnb board meeting in late July, Chesky signed off
on an IPO by the end of the year, according to the sources.
    "When COVID-19 hit, Chesky had to reverse a whole series of
initiatives that had been in the works for three years," said
Michael Ovitz, co-founder of Creative Artists Agency and an
informal adviser to Chesky. 
    "He was really affected by this and it went to the core of
everything he is about."

 (Reporting by Anirban Sen in Bengaluru and Joshua Franklin in
New York
Additional reporting by Jane Lee in San Francisco and Krystal Hu
in New York
Editing by Greg Roumeliotis and Grant McCool)
 ((; +1 646-223-6356; Reuters
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