Airbnb stock filing paints a rosy picture, despite COVID storm

But Airbnb’s filing doesn’t address how much the growing wave of city regulations around short-term rentals may limit its growth

Last week, Airbnb, Inc. filed its long-awaited S-1 with the U.S. Securities and Exchange Commission (SEC) in anticipation of its Initial Public Offering (IPO).

But Airbnb’s filing doesn’t address what should be top of mind for potential investors: namely, how much will the growing wave of city regulations around short-term rentals limit its growth? And to what extent does its business model rely on challenging these regulations – or a city’s ability to enforce them? 

Airbnb has long been in the business of using housing stock as hotel inventory. While the company has argued that its impact on housing affordability is negligible, independent research suggests the opposite is true.

The global pandemic helped demonstrate critics’ point as housing markets around the world are being flooded with fully furnished, former Airbnb rentals. These were not principal residences, but investment properties controlled by individuals as well as high-volume, multi-listing commercial Airbnb hosts.

COVID-19 and the resulting ban on global travel induced a drop in demand. Faced with a drop in online bookings, Airbnb laid off 25 per cent of its head office workforce. And it took on billions of dollars in high-interest debt (it borrowed $1 billion at 9 per cent and another $1 billion at 10 per cent) to help it weather the COVID storm.

Due in part to pressure from early investors to cash in their stock options, Airbnb decided to push for an IPO. Airbnb claims that it has managed to rebound, even while the entire market for tourism has practically disappeared.

Reading the 350-page S-1 filings closely shows that deep cost cutting was chiefly responsible for softening the impact of the pandemic on the company’s reported results. The extent to which fourth-quarter revenues were engulfed by the second wave will only be seen after the stock starts trading. 

But even before the pandemic, Airbnb reported billions in net losses and was facing declining growth rates in gross bookings and revenues. The fact that cities around the world were learning to protect their housing stock from Airbnb’s appetite for turning homes into hotels had something to do with this.  

Acknowledging this risk, but downplaying it, Airbnb writes in its S-1 filings: “We do not believe that the current regulations in our top 10 cities, in the aggregate, have had or are expected to have a material adverse impact on our results of operations and financial condition.”

The contention that changing regulatory frameworks doesn’t pose a material risk to its business is not supported by the facts.

Take Toronto, one of Airbnb’s top 10 cities, as an example.

In Airbnb’s largest Canadian market, short-term rental rules came into effect with a Local Planning and Appeal Board (LPAT) decision in November 2019. Toronto’s rules limit short-term rentals to principal residences (or to three rooms therein), which effectively renders commercial “ghost hotels” non-compliant.

High-volume, multi-listing hosts have until December 31, 2020, to register their principal residences with the city to receive a short-term rental permit. Airbnb has already informed its host community that it will de-activate all non-registered properties on January 8, 2021.

Toronto’s rules eliminate the lion’s share of Airbnb’s revenue from our city.

A Fairbnb Canada analysis of data scraped from Airbnb this February estimates that 9,708 listings at that time were operating in violation of the city’s rules. These listings generated 74 per cent of Airbnb’s estimated revenue.

What about other cities with similar rules and the many jurisdictions in Canada and beyond that are currently passing regulations centred around the principal residence requirement?

In September, 45 affordable housing groups and community organizations from around the world (including Fairbnb Canada) sent a letter to the chair of the SEC. The letter asked for complete disclosure as to how much of Airbnb’s revenue, city by city, is derived from non-compliant listings and how many regulations, passed and pending, would impact its ability to generate revenue.

Airbnb’s S-1 filing makes reference to risks posed by “regulatory challenges,” but does not disclose relevant details. 

If the SEC will not demand such detailed disclosures, any investor with an appreciation of the importance of affordable, accessible housing to our communities should demand it.

Thorben Wieditz is director of  Fairbnb Canada.


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