AIRBNB is completing its journey from scrappy startup to corporate heavyweight with its long-anticipated debut on the Nasdaq stock exchange.
The San Francisco-based company's shares opened at US$146 apiece, well above the US$68 initial public offering price, propelling the firm to a US$100 billion-plus valuation. And that's 24 hours after delivery firm DoorDash Inc supercharged investor expectations by almost doubling in its frenzied public debut.
That a short-term rental company is going public at all in the middle of a pandemic that cratered the global travel industry is testament to Airbnb's resilience. A combination of major cost cuts and an explosion of consumer interest in vacationing close to home helped the company rescue its year and outperform rivals like Marriott International Inc and Expedia Group Inc.
Yet, major risks remain. Cities are introducing stricter regulations after a backlash against the platform from long-term residents. And what travel will look like post-pandemic is still just speculation.
Investing in any new listing is risky. Initial exuberance can easily give way to buyers' regret in a blink of an eye. Always consider investing in any single-stock a complement to an existing balanced portfolio rather than an all-in bet. But if you are thinking of taking the plunge on Airbnb stock, here are some things to consider:
How is the company doing?
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A year of stay-at-home orders around the globe has wreaked inevitable damage on Airbnb. As travel options dried up, booking values fell almost 40 per cent in the first nine months of the year compared with the same period the year before. Overall, the company lost US$697 million up to Sept 30, compared with US$323 million at the same point last year, according to company filings.
Still, during that period, the firm brought in revenue of US$2.5 billion. And the third quarter of this year was actually Airbnb's most profitable ever as measured by earnings before interest, taxes, depreciation and amortisation. Prospects for the company began to recover during summer in the northern hemisphere. International travel restrictions drove more people to take vacations close to home. Airbnb also cut costs dramatically. In May, when bookings were plunging, the company slashed marketing costs and cut its full-time employee headcount by 25 per cent.
What's the case for buying?
If you're betting on a travel rebound. The UK became the first country in the world to start using a clinically authorised vaccine this week. The US and European Union may soon follow. If this and other measures help quash the pandemic, business and recreational travel may resume in 2021, which would very likely result in more business for Airbnb. This, of course, would boost its performance as a company and value as an equity.
"We guess that Airbnb could become a very positive story next year as part of the rebound trade based on rollouts of Covid-19 vaccines," Peter Garnry, head of equity strategy at Saxo Bank, wrote in an e-mail. "Travelling will surprise to the upside against current consensus over the next two years, surprising many and benefiting Airbnb."
If you like that "to Airbnb" is now a verb. When people start to use a brand name as verb (for example, "to Xerox") that's a clear sign of ubiquity and staying power. Both travellers and homeowners now talk about "Airbnb-ing". What's more, the company is a brand the new generation of millennial investors grew up using.
Such name recognition can help cement the company as the place to go for short-term rentals. It also means Airbnb has to spend a lot less money on advertising, helping profitability.
If you are looking for global diversification. From San Francisco to Sydney, Airbnb has pushed aggressively across the globe. This now means that it is more diversified than some of its competitors. The company generates 63 per cent of its revenue outside the US, according to an analysis by Bloomberg Intelligence.
Booking Holdings generates less than that - some 50-60 per cent - of its revenue in Europe alone. And Expedia is similarly weighted in North America. Airbnb's global reach could be a boon if the recovery in travel is uneven.
If you believe remote work is here to stay. Services such as Airbnb have made it easier for people to rent homes in remote locations without hotels. This year, that has become even more attractive as offices have shut and employees have been able to work remotely, including from Airbnbs in exotic locales. If this trend continues, it could continue to boost the company.
If you think the company is underpriced. Airbnb's value reached US$31 billion in a 2017 private funding round, yet at the height of the pandemic, a debt funding round valued it at just US$18 billion. This sort of variation means some investors may be underestimating the company's potential, which could mean a bargain for you.
…and what reasons to steer clear?
If you think travel has changed forever. This year was disastrous for hotel and airline companies. Bookings tanked. Firms went bankrupt. And customers were too scared to do all that much travel, especially abroad. This may improve if Covid recedes soon. But there is a chance that we may not revert back to pre-pandemic norms, especially if a significant bloc of consumers remain too scared to travel afar. That would be a drag on Airbnb's business model.
If losses scare you. Like many startups, Airbnb has focused on growth over profitability. This is one of the negatives James Cordwell, an internet analyst at Atlantic Equities, sees in the stock.
"At the minute, it's loss making. It's hard to discern how much of that is structural versus just some form of profligate spending historically," he said. "There is an element of it which is structural in that it is more expensive from a customer service perspective to operate alternative accommodations."
But Mr Cordwell, who is otherwise bullish on Airbnb, says this may simply be a function of the company operating for the past 12 years as a private firm with readily available capital.
If you fear Airbnb has limited space to grow. Online travel services are different from other digital businesses in one important way: a lot of people who use the Internet already use them. According to an analysis by Bloomberg Intelligence, more than 50 per cent of people who have used the Internet have also used online travel services. That figure only goes up to the mid-teens, percentage-wise, for other categories, such as e-commerce and online food delivery.
Meanwhile, some of Airbnb's attempts to diversify into different services have had questionable results. Airbnb recently launched Experiences, which lets guests book things like cooking classes and city tours. Some have speculated that it's a money loser, and results from these activities was not broken out from other businesses in Airbnb's filing. So it's difficult to know for sure.
If you see legal troubles ahead. As Airbnb has moved further away from its roots of offering a spare bed for a night, residents in popular destinations have grown increasingly frustrated with the service.
Issues range from the difficulty of living next to an ever-changing stream of guests to the perception that short-term rentals increase local prices. The company has also been sued by cities for advertising illegal properties, not complying with subpoena orders and not paying taxes.
These legal skirmishes can have a big impact. After San Francisco introduced laws limiting the number of nights hosts could rent their properties, the number of available listing in the city plummeted.
Parties have also become a growing political problem for the company. As well as angering neighbours and boosting regulation attempts, unauthorised gatherings expose the company to litigation. With so many listings, cracking down could be costly. BLOOMBERG
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