Airbnb’s 3 biggest challenges on its road to an IPO

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Airbnb is forging ahead with an initial public offering, despite a host of challenges.

The home rental service on Wednesday said it had confidentially submitted paperwork to the Security and Exchange Commission for an IPO. The number of shares that it will sell and their price have not yet been determined, the company said. 

The move comes just three months after Airbnb cut nearly 2,000 employees, or 25% of its workforce, due to the slowdown in rentals caused by the pandemic. And it’s unclear whether people will continue to shy away from traveling after the outbreak ends.

“This is a very bold, gutsy, counterintuitive move,” Henry Harteveldt, analyst at travel industry research firm Atmosphere Research, said before bringing up the rising share prices of many companies while the economy cratered due to the coronavirus. “But the stock market seems to be divorced from the reality of the rest of the world. … So while the iron is hot, why not strike?” 

Here are three of the biggest challenges Airbnb faces.

Coronavirus concerns

As the coronavirus continues to spread, Airbnb will be challenged to convince consumers that its rentals are safe. 

In May, the company implemented new cleaning protocols that were developed with former U.S. Surgeon General Dr. Vivek Murthy and other experts in medical hygiene and hospitality. The app identifies hosts who follow the new protocols, which includes using certain cleaning products and leaving a 72-hour window between bookings.

But Harteveldt said that may not be enough compared to the big money that hotels are spending to convince travelers that their facilities are safe. While hotels have been inconsistent in following their own cleaning standards due to reduced staffing, they are better at assuring travelers that they, in fact, are following those new policies, Harteveldt said. 

“No one is winning this battle,” he said. “But the public perception is worse for home sharing than it is for hotels.”

Profit problems

Tech investors increasingly want companies to focus on profits rather than growth at any cost. After posting multimillion-dollar losses in 2019, Airbnb will have to show that it make money—even as the coronavirus decimates the travel industry. 

During the first nine months of 2019, Airbnb reportedly lost $322 million, compared to a $200 million profit a year prior, according to the Wall Street Journal. Meanwhile, people are traveling less to avoid contracting the virus. 

But Airbnb has said that it’s seen some progress. In July, the company said that rentals in rural areas jumped 25% year-over-year during the previous month. And on July 8, guests booked more than 1 million nights of future stays worldwide—the first time that had happened since March. 

But Paul Condra, an analyst focused on emerging tech companies at research firm PitchBook, said that these numbers only tell part of the story. “The big question is what’s happened in cities, and how much of their inventory is there?” he said. “The cities probably aren’t recovering as fast.”

Rebuilding trust

Airbnb has had its fair share of incidents that have upset its guests and hosts, and those could complicate matters for its IPO.

The company has struggled to control unauthorized parties, at least two of which have led to shootings. It also allowed fraudulent listings that led to guests being scammed out of their deposits. And after recently opting to fully refund guests who needed to cancel their rentals because of the coronavirus, it ended up upsetting both hosts and guests in the process. Some Airbnb guests argued the refund process was complicated while hosts complained that the company didn’t do more to compensate them for their lost income.  

“Airbnb is nothing without its hosts,” Harteveldt said. 

And customers, most of whom Harteveldt said only use the service once or twice a year, may not return after having to jump through hoops to get their canceled trips refunded. 

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