Airbnb stock price by TradingView

Two months are almost gone since the Airbnb IPO so it’s time to analyze the partial results. Despite a difficult situation around Covid-19, shares of the American vacation rental online marketplace has grown by almost 30%. Airbnb’s valuation is now over $100 billion, which is more than Marriott’s (the largest hotel chain) and Hilton’s combined. And all of this considering that the Airbnb does not even own a single piece of real estate.

The question in play is the following - why did the company grow so much?

Firstly we should mention that 2020 was a historic year for the IPO market. Both volume and value soared due to a continuing trend toward mega deals (valued over $1 billion) driven by US and Chinese companies which brought about $331 billion across 1591 listing - 42% more than in 2019. Also, a very bullish market, helped by the major financial institutions lowering the interest rates around the globe.

In this context, it should not be a surprise that analysts gave a high valuation before the stocks were dropped to the public. Airbnb’s wanted about $44 to $50 per share, and then closer to the event the initial price rose to $56-60 range. Strong demand, however, pushed the price even further to $68 per share and it was just the beginning. Once the company’s shares entered the open market, the final price soared to $140, becoming one of the biggest IPO’s of them all.

Two months later the IPO, the company can’t report positive developments, because, despite the approval of multiple vaccines, the travel industry has much to recover for the well-know reason, Airbnb is suffering as well. Some say that the main reason the company went public - is that they needed money due to the huge losses during the pandemic. So we are sure that the current market cap does not represent the actual “health” of the company. On the other hand, investors might think “long-term”, but how much time will it take for the travel industry to recover 100%, and will it ever happen? Plus there are many other competitors on the market right now - Vrbo, HomeToGo, Holidu,, and Expedia. Airbnb will need to post some brilliant quarters to outperform others and 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.” Also 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.”

Regarding the numbers. First nine months of 2020 Airbnb’s revenue dropped by 32$ YoY to $2.5 billion, and gross booking was slashed by 39% to $18 billion. Its net loss more than doubled during the period to $697 million.

It’s hard to say if and when things will start to improve, so for now one should not blindly expect Airbnb to turn profitable anytime soon. Moreover, nobody prohibited “black swans” to appear from time to time, so that Airbnb could face unpredictable regulatory headwinds.

And finally, for sure it makes sense to wait for the first earnings reports after the IPO, most probably numbers won’t be that optimistic. And the last thing - it could be interesting to see the company’s outlook. From Free Cash Flow Yield, ROIC, Price-to-EBV Ratio, and the Growth Appreciation Period, investment in Airbnb at the current levels looks quite unattractive imo.