Crowd-sourced short-term rental accommodation company Airbnb is raising the target valuation of its impending IPO to $42 billion from $34.8 billion. The company, founded in 2008, has been a serious ‘disruptor’ of the traditional hotels sector over the past decade. Like most companies in the travel, tourism and hospitality sectors, it’s been hit hard by the Covid-19 pandemic this year. But despite a tough 2020, the company believes initial indications of investor appetite for its IPO will support a more aggressive valuation.
The IPO will close tomorrow with Airbnb planning to sell 51.9 million shares at between $56 and $60 each, raising up to $3.1 billion. That would make it one of the biggest IPOs of 2020 and see Airbnb valued at $42 billion at the top end of its target range. The earlier target, stated in a regulatory filing last week, had been for shares to be sold at between $44 and $50.
Airbnb’s confidence in being able to target the higher figure represents a hugely positive end to a year that has been a nightmare for the company. Other than for a short window of opportunity over the summer months, international travel has been largely off the menu over the course of 2020, hitting Airbnb’s business hard.
Airbnb’s platform allows home owners to offer either rooms or properties for rent to tourists and business travellers as an, often cheaper, alternative to hotel accommodation. The company makes money by taking a fee from both guests and hosts when bookings are made.
However, having rapidly expanded internationally over the past decade, the company is till loss making. $2 billion in emergency funds was raised early in the year to see Airbnb through the pandemic. However, the company was still forced to reduce its workforce by 25%, making 1800 staff redundant as the travel industry collapsed.
This week will give a strong indicator of investor sentiment to risk and the tech sector. As well as the Airbnb IPO, Doordash, the restaurant takeaway delivery app company, will also IPO tomorrow. And it also raised its target price range from an original $75-$85 per share to between $90 and $95. If Doordash achieves its target price, it will be valued at $35 billion, fully diluted.
The company aims to sell up to 33 million shares, which would bring in $3.1 billion at the upwardly revised price range.
Despite the economic ravages of the pandemic, a record $156 billion has already been raised through IPOs on Wall Street exchanges over the course of 2020. Investors are showing a quite remarkable appetite for risk, especially when it comes to technology companies. The target price ranges set by both Airbnb and Doordash would both represent significant premiums to their most recent private valuations, at $18 billion and $16 billion respectively.
The listings look set to secure healthy returns on investment for venture capital giant Sequoia Capital, which was an early investor in both companies. Bloomberg reports Sequoia looks set to record one of its most successful years ever. Investors in at least two of its more mature funds are likely to finish the year with paper returns of up to 1100% on their initial investments.
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