Cash-strapped Airbnb, Inc. has a tough road ahead if it wants to pull off a traditional IPO in the current climate and would likely have an easier time going public through a merger with a special purpose acquisition company, or SPAC. That’s according to IPO Edge Editor-in-Chief John Jannarone, who spoke to Cheddar TV in an interview.
Jannarone pointed out that Airbnb has already been forced to conduct a billion-dollar capital raise at an onerous 12% rate to keep a cash cushion. In order to give investors peace of mind, the company would likely need to raise several billion dollars in an IPO.
While Airbnb CEO Brian Chesky may point to signs of improvement in the business, revenues are still sharply lower in key urban areas where the company operates. And the chance of a third wave of coronavirus infections could trigger widespread cancellations that dent the company’s balance sheet yet again.
Jannarone said that a regular-way IPO doesn’t allow companies to give detailed forward guidance, which would make it especially hard for Airbnb to “tell a story” about its path to recovery and ultimate profitability. He also pointed to Dealogic data showing that only corona-resistant companies have done successful IPOs in significant size in 2020, including Warner Music Group Corp. and ZoomInfo.
On the other hand, William Ackman’s Pershing Square Tontine Holdings Ltd. raised a whopping $4 billion in the largest IPO of the year for a SPAC. Jannarone said Pershing Square Tontine could offer Airbnb a large amount of cash and a listing if they were to merge, achieving key goals.
What’s more, a SPAC transaction allows companies to provide extremely detailed guidance about future expectations, which would be key to selling investors on Airbnb while its business is suffering. That has allowed several companies with long-term vision stage successful debuts this year, including Virgin Galactic Holdings, Inc. and Nikola Corporation.
John Jannarone, Editor-in-Chief