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Airbnb’s $3.1 billion IPO hinges on hosts who make rentals feel like home

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By Olivia Carville

Airbnb Inc. Chief Executive Officer Brian Chesky, on the eve of one of the most anticipated initial share sales of the year, is asking investors to get behind the idea that the company’s pandemic-scarred home-rental business is bouncing back.

He also needs would-be shareholders to look past another troubling trend: a rise in the number of professional hosts renting out sometimes anodyne properties, threatening the business model Airbnb pioneered of offering distinct homes brimming with personal touches.

Airbnb acknowledges the shift toward corporate-run properties and the risk it poses to its identity. “We have seen an increase in the number of, and revenue from, professional hosts on our platform,” Airbnb said in its public listing document. If the number of individual hosts doesn’t expand at the same pace, Airbnb said the site will lose some of what makes it unique and sets it apart from hotel chains. As of the end of last year, Airbnb said only 10% of its total hosts were professional, as opposed to individuals. However, they accounted for almost 30% of room nights booked.

On Wednesday, Airbnb will price shares in a long-awaited initial public offering, raising as much as $3.1 billion and valuing the company at $42 billion. In the twelve years since its founding, the San Francisco-based startup has welcomed 825 million guests, upended the hotel and travel industry and created a whole new market for companies that cater to hosts and properties. It owes much of its success to homeowners like Sara France who were willing to take a risk on a new mode of travel by handing over their keys to total strangers.

France, a freelance photographer, happened to take a picture of Joe Gebbia back in 2008 as part of an iPhone campaign for Apple Inc. The young Silicon Valley entrepreneur told France about the startup he was founding with Chesky and Nate Blecharczyk: a website where one could rent out a mattress on the floor or a spare bedroom to make some extra cash and meet interesting people. It was called Airbed & Breakfast. That same year, France became the first person to rent out her entire home on the site.

“I’ve been an Airbnb host for as long as the company has been around and it’s changed tremendously over the years,” says France, 45.

Now, two doors down from France’s San Diego house is a five-story apartment complex made up of all Airbnb listings. “People can tell when there’s a lovely family running an Airbnb and when there’s a company running it,” she says.

In its IPO filing, Airbnb pays homage to its 4 million hosts, recognizing its dependence on the kind of people who put wildflowers in guests’ rooms and leave bottles of wine and candles on the dining table. But the reality is that a significant portion of Airbnb hosts today are professionals who run multiple properties that have been decorated in a globally recognized minimalist aesthetic expressly for the intent of being rented out on the platform, and in which the owner has never lived.

An Airbnb spokesman declined to comment, citing regulatory restrictions ahead of the IPO.

The rise of professional listings have caused regulatory and public relations liabilities for Airbnb, as illegal units jacked up local real estate prices and neighborhoods became overrun with hordes of suitcase-wheeling tourists in markets from Barcelona to New York. At the same time, big-city listings also bring in the bulk of revenue. With lawsuits in several cities, and expansion projects from tourist activities to boutique hotels and even documentaries eating up cash flow, Airbnb seemed to be spinning in a million directions before the pandemic forced a reckoning.

The spread of Covid-19 ground global travel to a halt and Airbnb saw demand for bookings fall 72% in April. The company put its IPO on hold and wondered if it would ever recover. Airbnb rolled out a blanket refund policy and doled out more than $1 billion in cancellation fees, which appeased guests but infuriated hosts, many of whom rely on their Airbnb income to pay their rent or mortgage.

This served as a wake-up call for Chesky who quickly realized two things: They’d been trying to do too much and they needed their original host community now more than ever. As the pandemic dragged on into the summer, the traditional high-point of the vacation season, Airbnb was surprised to note that instead of stopping travel, people changed how they traveled. City dwellers who were sick of being stuck inside their homes got in their cars and drove to mountain towns and rural communities, often setting up for weeks or months at a time as work-from-home policies allowed.

Business began to bounce back in June. The home-share giant fared better than its rivals because of its individual hosts who were able to adapt to the new setups that people wanted — yards, more space inside, no common elevators. International travel was down, but demand for domestic, short-distance trips and stays outside of the top 20 cities was proving resilient. In the third quarter, Airbnb’s revenue declined only 18%, compared to the near 60% decline for Expedia Group Inc. and Marriott International Inc. The three-month period was also Airbnb’s most profitable ever, based on earnings before interest, taxes, depreciation and amortization.

In a letter to shareholders, the three co-founders said the 10 months since the pandemic have been “the most defining period since we started Airbnb.” In order to survive, they are setting aside ambitions to diversify and instead choosing “to focus on what is most unique about Airbnb — our core business of hosting.”

In a sign of its commitment, Airbnb is offering a directed share program in its initial public offering to active U.S.-based hosts, inviting people like Sara France to buy shares at a pre-IPO price in order to reap the rewards of continued valuation growth. The company has also created a host endowment fund initially stocked with 9.2 million shares. If it reaches $1 billion in value, Airbnb will use the excess to start funding projects that benefit hosts. Chesky is personally contributing $100 million worth of shares to the fund.

Airbnb is also establishing a host advisory board to help direct the best way to distribute the endowment and to try to recreate a bond that has frayed in recent years. In the company’s early days, hosts felt a sense of camaraderie with Airbnb as they worked to normalize the idea of strangers sleeping in one another’s homes. Many hosts felt like Airbnb had their back. The company made personal property managers available to sort out difficult situations. It wasn’t unheard of to have Chesky turn up on a host’s doorstep to stay a couple of nights as a guest. Every year, the company held an Airbnb Open festival to celebrate its host community. In a show of support in return, hosts would picket at local city council meetings, demanding friendly short-term rental regulations and the right to home-share.

This relationship changed as Airbnb’s listings — and valuation — ballooned. The Airbnb Open conference was scrapped. Personal property managers were replaced with automated email responses or long wait-times on generic customer service lines. Chesky stopped crashing in Airbnbs and he’s now a billionaire with a personal security detail. Quirky or off-beat listings were held to hotel-like standards of professionalism and cleanliness and told to get five-star ratings after every stay. Original hosts who made $50 a night renting out their second-bedroom felt like the company cared more for mega-hosts.

Indeed, as Airbnb courted the more lucrative business-travel industry, professional hosts, including property management companies and serviced apartment providers, started listing thousands of managed units on the site and became a significant money-maker. Airbnb acquired Urbandoor, a serviced-apartment rentals marketplace, last year, connecting it to Greystar, one of the largest property management companies in the world.

Luca Zambello, chief executive officer and co-founder of Jurny Inc., a short-term rental startup that lists 400 properties on Airbnb, estimates 40% of Airbnb’s offerings are professionally operated. “The platform is built on companies like ours,” he says. Most guests who use Airbnb want to feel like the place is classy and clean “rather than someone who woke up yesterday and decided they wanted to rent out their apartment and there’s a bunch of personal stuff still in it,” he says.

Julie Ransom, one of the first Airbnb hosts in Pittsburgh, realized she could make more money and attract more guests by offering up professionally-managed whole homes rather than a shared space. But she still appreciates what she believes Airbnb has taught her about herself. Like when two men from Scotland turned up at her door, sweaty and grimy after a day of traveling.

“Between the two of them they had 20 piercings on their face and all these tattoos and wild hair-dos and I thought ‘This is it, I’m going to get killed in the middle of the night,’” Ransom recalls. “That was my world view of people who look that way, but they turned out to be the sweetest guys. We’ve formed this really lovely bond and I think we will always continue to stay in touch.”

It’s human connections like this that Airbnb hopes investors will buy into.

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