Airbnb Inc. has held talks to acquire hotel-booking site Hotel Tonight Inc. as the home-sharing company seeks to bolster its offerings and make itself more attractive to investors ahead of an eventual IPO, according to people familiar with the negotiations.
Acquiring the closely held site would give Airbnb a way to show investors more growth potential and demonstrate it can branch out beyond its core short-term, home-rental business ahead of a share listing the company has said could come this year or next.
Talks between Airbnb and Hotel Tonight, described by one of the people as informal, have gone cold though they could come back to life. Merging private companies is challenging in part because of a lack of public valuation benchmarks. Airbnb’s management has also been concerned about diluting the company’s brand as Hotel Tonight has partnerships with a wide range of hotels, some of the people said.
Hotel Tonight, founded in 2010 and based in San Francisco, culls unsold inventory from hotel chains and offers discounted rooms to travelers seeking last-minute deals, typically in urban business districts.
The company was last valued at $463 million in March 2017, in a $131 million funding round. The site’s customer base and revenue have been expanding rapidly since then, and its valuation could be significantly higher now, though it isn’t clear by how much.
Whether or not there is a deal, Airbnb’s flirtation with Hotel Tonight highlights the need some executives and investors see for the startup to branch into new lines of business that can bolster its core home rentals, particularly as it faces heightened competition from other online-travel aggregators like Expedia Group Inc.
The potential move also points to Airbnb’s desire to show it can move beyond its reputation for renting out quirky homes and apartments into something more like a full-service travel website.
But a purchase of Hotel Tonight would represent a big strategic move, and there is no guarantee it would succeed. Airbnb is separately considering building its own competitor to Hotel Tonight and is also eyeing joint ventures with boutique hotel chains, some of these people said.
But that approach brings its own set of challenges. Some Airbnb investors have expressed concern that building, rather than buying, could take years when a hotel strategy is critical for the company to help justify an IPO valuation at or above the $31 billion it achieved in its last funding round in March 2017.
Airbnb in recent months told potential advisers it is unlikely to debut in 2019, when a number of large private technology concerns are expected to go public, according to people familiar with the conversations. Airbnb’s desire to shore up its hotel offerings first—with an acquisition or an internal ramp-up—is one key reason it is likely to wait longer than some of the others.
Founded in 2008, Airbnb has more than 5 million listings of places to stay in more than 81,000 cities and 191 countries. The company says its hosts have raked in more than $40 billion from the service since it started.
Airbnb has struggled with adding enough inventory of new homes in hot markets for travel and faces growing competition from rivals, including Expedia and Booking Holdings Inc., moving into home and apartment rentals.
Airbnb Chief Executive Brian Chesky has been seeking other ways to expand the company beyond its core business. But Airbnb’s costly initiative to goose customer spending through local experiences like cooking classes and guided tours has largely fizzled, generating cumulative revenue in just the tens of millions, according to people familiar with the matter.
The company this week said it would continue to invest in the unit providing such services, which is now available in more than 1,000 cities globally, up from about a dozen in late 2016. San Francisco-based Airbnb already offers some hotel rooms on its site. It is a growing business, the company has said, but remains small compared with the core operation of offering private homes and apartments for short-term rental.
This week, Airbnb touted its growing listings of smaller boutique hotels, which it said helped drive overall traffic to its website, noting the number of rooms jumped by 152%. However, it didn’t give the underlying figures, nor did it say how frequently customers were selecting that inventory.
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The IPO market has been ramping up lately, and 2019 is expected to be a banner year, with the likes of Uber Technologies Inc. and Slack Technologies Inc. planning imminent debuts. The government shutdown has temporarily frozen the market, but a rush of listings is expected when it ends, potentially making 2019 a historic high as measured by dollars raised.