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Michael Scott

Michael Scott

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Michael Scott majored in International Business at San Francisco State University and University of Economics, Prague. He is now working as a news editor for…

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Airbnb Faces Off Against China And Teases Potential IPO

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Perhaps one of the biggest and most tantalizing question for investors waiting on tech unicorns to IPO is whether Airbnb—one of the key players on the 2018 CNBC Disruptor 50 list—will go public anytime soon.

And its CEO, Brian Chesky, is happy to tease this out, telling a conference Wednesday that Airbnb is “ready” and it “could happen” in 2019, when Uber is tentatively planning its IPO.

But Chesky isn’t just playing to the crowds; he’s being cautious. After all, timing is everything, and while the Spotify IPO earlier this year was a great tech unicorn story, even though it bypassed the IPO and listed directly on the NYSE, Airbnb wants to make sure that going public will be truly beneficial.

Late last year, Airbnb was valued at $31 billion, and since 2014, it’s raised some $1.6 billion by private capital. 

In mid-March, Chesky said in a statement that Airbnb was probably halfway through the “project” of preparing for an IPO, noting that their “primary focus is becoming a 21st-century company and advancing our mission. We’re working on getting ready to go public and we will make decisions about going public on our own timetable.”

Airbnb turned into the black on an EBITDA basis in the second half of last year. This year, expectations are that it will stay profitable throughout and is focused on expanding its products and services portfolio and securing an very important market.  

Chesky wants Airbnb to metamorphose from its real estate rental reputation into a “global travel community”.

“And so the people who misunderstand Airbnb, they tend to just see a bunch of real estate,” Chesky told the California Code Conference this week. “But of course, if you look a little deeper, what you’re going to see are three million people — our hosts — and that’s in many ways, really, what you’re buying.” Related: The Cyber Heists Banks Don't Want You To Know About

“We want to focus on the things that are most differentiated, the things that are most oriented around community, whether that’s going into Experiences or doubling down on China,” he added.

A ‘community’ does much more than compete with hotels for guests. By offering “experiences” in the form of activities hosted by locals, Airbnb creates another potential revenue stream.

And it’s already doing a million and a half bookings on an annualized basis, according to Chesky, for global activities for everything from localized cooking classes to photography workshops.

When you travel, you don’t just want to sleep, you want to experience the culture around you, and Airbnb thinks it’s the future of this new community outreach. So far so, good: Chesky says Airbnb’s “experiences” product is growing ten times faster than its homes product. 

If “experiences” are part of the new game, the other key element is securing China, and Airbnb is trying to go it alone here.

In 2015, Airbnb moved to expand its domestic China business, eyeing a domestic tourism industry that took in some $710 billion last year (15 percent more than it took in the year before).

And it wasn’t easy: They had to incorporate as a separate Chinese entity (Aibiying), share passport information with the authorities, and agree to store all data on Chinese servers.

Customers get to use Chinese WeChat for messaging and pay through Alipay.

In March, they launched Airbnb Plus in China, for high-end accommodations.

The question now, according to Bloomberg, is whether Airbnb can succeed on its own in China, after it refused a merger deal with Chinese rival, Tujia, in January. Tujia still seems to be confident that Airbnb will come around and realize that it was wrong to reject the merger, which would have given Airbnb up to 80 percent ownership in the deal.

Last October, Tujia hit a valuation of $1.5 billion, and since the deal broke down, Tujia has managed to raise $300 million in financing. Now it’s at war with Airbnb and it’s spending a fortune on promotions that up the ante in this game. It also claims to be growing three times faster than Airbnb, with 1 million listings, according to Bloomberg. Airbnb isn’t spending as much as its rivals to secure this market.

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Chesky may not have wanted to dilute the Airbnb brand by merging with Tujia, but some feel that the end result will be the creation of a ferocious rival that could have been avoided.

In the meantime, inside investors and venture capitalists may be eager to monetize their investments with an IPO that gives them an exit strategy, and public investors are indeed starving for shares in these unicorns—but for Airbnb, timing is tricky strategically.

China might not be the end-all for an Airbnb IPO, but the timing will have to be right for investors to be hungry enough to jump on board, and both China and global “experiences” will be major considerations. An IPO might not be the smartest move until experiences have had time to grow and show clear profit margins, and China is secured in the face of rivals who have the local advantage and plenty of financially-backed ambition.

By Michael Scott for Safehaven.com

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