US Market

Airbnb IPO: Will This Travel and Leisure Play Soar Post-Pandemic?

Calvin Lo

Airbnb will IPO this Thursday 10th December 2020 on the Nasdaq under ticker symbol ABNB.

Details of the IPO

  • Price: $68 (up from previous target range $44-$50 per share)
  • Number of shares offered: 50M shares
  • Target total proceeds: ~$3B
  • Target fully diluted valuation: ~$47B
  • 2019 Revenue: $4.8B; P/S: 9.8x
  • 2019 Net loss: -$674M
  • 9M2020 Revenue: $2.5B (-32% yoy); P/S: 18.8x
  • 9M2020 Net loss: -$697M

Pros

  • Strong community of hosts and guests, network effect
  • Globally recognized brand
  • Custom-built platform

Cons

  • Lack of consistent profitability, slowing revenue growth
  • Risk of tighter regulation on short-term rentals
  • Increased competition from online travel agencies and hotels
  • Inability to grow new offerings, e.g. Airbnb Experiences

Competitors

Booking Holdings BKNG, Expedia Group EXPE, Google GOOGL, TripAdvisor TRIP, Trivago TRVG, Craigslist, Marriott MAR, Hilton HLT

My Thoughts

Prior to the pandemic, Airbnb in 2019 showed impressive revenue growth but costs appeared to be getting out of control. In May 2020 partly due to the pandemic, Airbnb laid off 25% of its workforce. Hopefully, they will be more focused on cost control going forward. The pandemic hit Airbnb hard, and although they are recovering, they have been forced to raise more cash.

My main concern on Airbnb is whether they can achieve better profitability and operating margins as they continue to scale, even if global travels recovers quickly because of the vaccine. Costs seem to be increasing with is size. Unlike manufacturers where costs per unit reduce at greater economies of scale, I struggle to see it happening for a platform like Airbnb.

Competition is stiff, with Booking Holdings (BKNG) also offering a similar service, allowing hosts to offer their apartments. How is Airbnb going to differentiate itself? As a budget-conscious traveler myself, I would go with the most affordable option with decent reviews. Although BKNG trades at higher P/S multiples, at least it is profitable unlike Airbnb.

Personally, I will probably take a wait and see approach once Airbnb lists. If it happens to open around or slightly above target range, I might consider dipping my toes in through a small position. Thereafter, I will probably wait at least until they their first results report post-IPO to get more details and a better gauge of how the company is doing and its future prospects, before deciding on whether to build my position.

What do you think of Airbnb? Are you subscribed to the IPO or will you be looking to pick up some shares once it lists?

Links

Update 10th Dec 2020: Airbnb prices IPO at $68 per share. Seems like Airbnb expects high demand and a lot of hype surrounding this IPO. Will not be surprised if ABNB opens above $100. I might place an order for a tiny position around $70-75.

Update 11th Dec 2020: Airbnb opened at $146 per share. That’s a bit too hot for me, so I’m taking a pass on this one. If stock price falls below $100, it might be worth another look.