It has been almost two months since Airbnb went public

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Airbnb stock price by TradingView

It has been almost two months since Airbnb went public and it is time to analyze the results. Despite the difficult situation around the covid-19 pandemic, shares of the American vacation rental online marketplace have spiked almost 30%. Thus, the company’s valuation is now over $100 billion overpassing Marriott (the largest hotel chain) and Hilton hotels combined. And we shouldn’t forget that Airbnb doesn’t own a single piece of real estate.

The question then should be asked, why did Airbnb surge so much?

First thing first, it is important to mention that 2020 was a historic year for the IPO market. Both its volume and value skyrocketed due to a continuing trend toward mega deals (valued at over USD 1 billion) driven by Chinese and US companies. Overall, $331 billion were raised across 1,591 listings – a 42% increase compared to 2019. Another reason could be a bullish market sentiment, which partly contributed to the lowest interest rates ever.  

In this context, it shouldn't be a surprise that analysts gave a high valuation before the company went public. It may be hard to believe but Airbnb had anticipated pricing the shares first in the $44 to $50 range, and then closer to the event in the $56 to $60 range. Strong demand has pushed that number even further, up to $68 per share. Howbeit, once the company’s shares entered the open market, the final quote soared to +$140, becoming one of the largest IPOs of all time. Apparently, investors totally forgot that the travel industry was one of the outsiders in the Covid-19 crisis. 

At the same time, the number of competitors continues to grow. There are over 14 potential candidates to take over Airbnb’s market share. Some of them are Vrbo, HomeToGo, Holidu, Booking.com, and Expedia. Moreover, what if Amazon decides to enter a new market, just as it did buy Whole Foods in the US. In other words, it isn’t the best situation for Airbnb and won’t be until countries reopen their borders and we will be able to travel safely.  At the same time, we should remember that Company went public because it was experiencing serious problems due to lockdowns. 

"It took us 12 years to build Airbnb, and we lost almost everything in four to six weeks," Chesky said in an interview on CNBC, indicating that the company was preparing to go public this year, and now that is up in the air.

A couple of months later, the company still can’t report positive developments because even despite the approval of multiple vaccines, travel levels are far beyond the pre-pandemic ones. According to US Travel, travel spending totaled a mere $679 billion in 2020, an unprecedented 42% annual decline (nearly $500 billion) from 2019. International travel spending fell 76% (compared to 34% for domestic travel) while business travel spending fell 70% (compared to 27% for leisure travel). It is true that since Paril the industry experienced a significant hike but progress stalled in the final quarter of the year as the continued absence of business travel and another surge in COVID-19 cases left the travel economy particularly vulnerable to the seasonal decline in leisure travel.

Thus, the current price of Airbnb stocks doesn’t represent the financial health of the company. It’s also true that investors might think in longer-term, but how much time will it take for the business to fully recover and will it ever happen? Will it be able to continue competing with new players on the market? The company will need to post strong growth numbers to justify its premium valuation.  

Even Airbnb Co-Founder and CEO Brian Chesky admitted that “Once people feel safe to travel, they will. But it will look different than before the pandemic.” In terms of business trips, we should keep in mind that “the pandemic has institutionalized remote working for many companies—two in five Americans (41%) are able to work or study from home at least some of the time.” Thus, no more business travels, at least as we knew it.

In terms of financials, Airbnb's revenue increased 32% to $4.8 billion in 2019, and its gross bookings spiked 29% to $29.4 billion. Unfortunately, in the first nine months of 2020, its revenue decreased 32% YoY to $2.5 billion, whereas its gross bookings plummeted 39% to $18.0 billion. Its net loss more than doubled during that period to $697 million.

It’s hard to say when things will start improving, so for now one shouldn’t blindly expect the company to turn profitable anytime soon. Additionally, it’s important to mention that Airbnb could face unpredictable regulatory headwinds.

As a final remark, it could be the right thing to wait for its first earnings since Airbnb went public. Most probably, numbers won’t be very optimistic… In addition, it would be interesting to see the company’s outlook. From ROIC, Free Cash Flow Yield, Price-to-EBV Ratio, and the Growth Appreciation Period, investment in Airbnb at the current levels looks quite unattractive.