Following a manic opening day on the public exchanges, Airbnb stock is coming back down to earth, but is it a good investment?
Dec. 15, 2020
Last Thursday, December 10, Airbnb (NASDAQ: ABNB) finally floated on the Nasdaq exchange following months of anticipation. IPO’ing at $68 per share, by the time it became available to retail investors it was sitting somewhere closer to $150. With a valuation of $86 billion, the company was worth significantly more than the $18 billion it was valued at in April.
However, since its IPO, its stock has fallen more than 10% as investors begin to sell, while some analysts have even started assigning ‘Sell’ ratings. With that in mind, we discuss whether Airbnb is still a good investment?
The bull case for Airbnb
Despite the obvious overpricing in the middle of a pandemic that has obliterated the travel sector, there are 5 strong bull cases for Airbnb:
1. Large customer base: Airbnb has 4 million hosts worldwide (86% from outside the U.S.), and 5.6 million active listings.
2. Finances: The company saw rapid revenue growth in the last 3 years, with total revenue hitting $2.56 billion, $3.65 billion, and $4.81 billion in 2017, 2018, and 2019 respectively.
3. COVID-19: Pandemics hurt, which is why revenue fell 32% YoY in the first 9 months of this year. However, Airbnb recovered incredibly well, significantly cut costs, refocused on domestic stays, and has managed to pull out a quarterly profit during the worst economic crisis the travel sector has ever faced.
4. Host Access To Shares: What better way to ensure long-term loyalty from investors than to offer 9.2 million shares in a direct-offering program to hosts who listed on the site in 2019 and 2020?
5. Growth: Airbnb estimates its total addressable market to be $3.4 trillion, including $1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for experiences.
The bear case for Airbnb
We’ve already touched on the most bearish case of all, which is the impact of the COVID-19 pandemic on the travel industry; recent estimates put global losses for the sector in the trillions — with a T. However, Airbnb has performed well, relatively speaking:
- Q3 net income: $219 million
- Q3 revenue: $1.34 billion (-19% YoY)
- 2020 net loss (as of September 30): $697 million
- 2020 revenue (as of September 30): $2.52 billion
However, this is a rarity, as Airbnb has never posted an annual profit since its launch in 2008.
That is not the only issue though, as it has recorded losses of more than $1 billion in the past year with a negative free cash flow of $1.2 billion. Despite all this, it is still very expensive, valued at about three times its rivals such as Expedia.
Airbnb is also trading at more than 30 times its 2020 revenue through September.
So, should I buy Airbnb stock?
Airbnb was always going to be a manic IPO, which is one of the reasons that it is so hard to accurately price right now. It is also why we tend not to add recent IPOs to our shortlist here at MyWallSt, as we like to wait and see how the company performs over a number of quarters and allow volatility to die down.
One huge bull in favor of Airbnb as a long term strategy is the fact that it has weathered this pandemic incredibly well, even managing to eke out a minor profit — no small feat in these times. With such a recognizable brand and a massive total addressable market, the future does look bright for Airbnb, and for true believers who are not risk-averse, it could be a great investment now. However, it is always best to let the dust settle a bit so you can gain a clear picture.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above.