US: Airbnb is reportedly gearing up for a direct listing rather than an initial public offering [IPO], sources revealed to Bloomberg.
According to those same sources, it is believed that the short-term rental firm is set to hire Morgan Stanley and Goldman Sachs as joint lead advisers to its potential stock market flotation.
While an IPO is the conventional pathway into the public markets for technology startups, a new wave of firms, including Spotify, have been raising funds privately and no longer require funding through an IPO to grow their businesses.
Through a direct listing, companies can reduce the amount they pay in underwriting fees to investment banks, as they do not issue new shares nor raise new capital. Instead, it is the market which chooses the price.
Under an IPO, Airbnb would be required to reveal its finances to investors, something it may be reluctant to do in light of WeWork’s recent lowering in valuation from an initial $47 billion, which also saw its CEO Adam Neumann resign last week.
On Tuesday, venture capitalists and executives from private firms met in Silicon Valley to discuss the benefits of direct listings. The event was reportedly attended by Mike Moritz of Sequoia Capital, Airbnb’s largest venture capital backer, as well as Benchmark’s Bill Gurley and Spotify’s chief financial officer Barry McCarthy.
Ahead of going public next year as scheduled, Airbnb has experienced some internal tension, most noticeably when former employees sent a letter to Airbnb’s founders appealing for a public offering so that they could share their stock options successfully, according to The New York Times. Former CFO Laurence Tosi also departed after a disagreement with CEO Brian Chesky over the timing of a potential IPO.
Last month, Airbnb made a brief, one-sentence statement announcing that it would go public in 2020, although it did not disclose any details regarding the timeframe it was considering nor the route it would take when going public.
Another reason for concern for the short-term rental firm is the fact that other unicorns [privately-held startup companies that have reached a value surpassing $1 billion] have not fared as well as anticipated from recent IPOs, such as independent taxi services Uber and Lyft.
A further obstacle for Airbnb’s entry into the public markets is the matter of ongoing regulatory issues in large global markets where it operates, such as New York and Paris, where its rental business model has been met with hostility with city authorities ever since its founding in 2008. That could cast doubt on the company’s eventual valuation.
Skift founder Dennis Schaal wrote in a recent column that he believed Airbnb would opt for a direct listing.
He said: “What’s clear from its history is that Airbnb executives like to do things their own way.
“If the company can avoid the well-worn and costly initial public offering route that many of its peers have slogged through, and go for a direct listing instead, then that would be another jab at mainstream practices, make employees happy, and would fit in nicely with the Airbnb startup narrative and culture,” he added.