The hotly anticipated initial public offering for Airbnb is around the corner – the likely first day of trading will be Dec 10 2020 – and the company revealed yesterday that it is looking to raise between $40 and $50 per share.
At the higher end of the price range the company would be valued at $35 billion, above the $30-$33 billion investors have discussed over the last two weeks.
Unsurprisingly, this is also significantly higher than the $17 billion the company was valued at when it raised money in April this year when the coronavirus had already started gnawing on the travel sector.
While some investors’ palms may be itching to get hold of Airbnb shares the question is, is now a good time to jump in?
The outlook for travel sector stocks
Travel is likely to come back with a vengeance in 2021. Months and months of lockdowns and restrictions have made people hungrier for travel and as soon as the vaccines start working their way through the system and the weather starts picking up, many a delayed and postponed holiday will be back on the agenda.
We had a taste of that this summer when a two-month window brought a flood of tourists into the most popular summer vacation spots, as if coronavirus never happened. But there are likely to be a few more dark months before that, with most medical professionals expecting another surge of cases in Europe and the US after the New Year holidays and potentially more lockdowns on both continents.
The initial Airbnb share price looks high at the moment and given the current travel climate it may not see a quick uptick at the beginning of next year.
The Airbnb business concept
Normally when trying to evaluate the worth of a company for an IPO it is typical to look at the value of its peers, but this may not be the best strategy when it comes to Airbnb. For one, it is more original and more innovative than competitors like Booking.com NASDAQ:BKNG or Expedia NASDAQ:EXPE.
The one thing that you can expect from a guy who started a business by renting out his apartment to travellers to supplement his income is a high dose of entrepreneurial spirit and Brian Chesky, Airbnb’s CEO, does not disappoint. What started off as a platform for amateur renters to rent out their rooms and flats has, over the years, mushroomed into a multi-billion dollar operation that regularly comes up with new strands of income, such as Airbnb Experiences.
Since its inception in 2007 Airbnb has used a significant amount of raised funding to either gobble up smaller would-be competitors or invest in technology that channels traffic for specific groups such as business travellers, or travellers with accessibility issues to its site.
Having said that, the days of most explosive growth are likely behind the company as most major European and US cities now have an established base of Airbnb hosts. In these two regions Airbnb is also facing conflicts with local governments because of the company’s effect on the rental market, which has frequently resulted in the introduction of higher taxes for hosts.
Another potential future problem stumbling block is that now Google NASDAQ:GOOGL has a similar offering in the experiences space where it offers experiences, such as cooking classes in major culinary hot spots, yoga sessions in exotic locations and tours of cities and natural beauty spots.
Much of Airbnb’s path seems similar to Netflix NASDAQ:NFLX, explosive early organic growth in a market that did not have such an offering before, followed by a slower expansion and much bigger spending invested in keeping the expansion going.
What Netflix did, and what could be an option for Airbnb, is to expand into regions where it wouldn’t have naturally positioned itself in the past. For instance there is a whole slew of travel routes where Airbnb is only just becoming popular among local hosts such as in Russia, Central Asia, China and other Asian countries. In these regions the language and currency divide between hosts and travellers, such as a Korean travelling in Russia, is the easiest bridged using an English language middle man like Airbnb.
When to invest in Airbnb stock?
Looking at private equity invested in the company over the last few years, we know that Airbnb’s valuation was around the $31 billion mark in 2017 and that the following year it shot up to $42 billion. Granted, these were two years of fast rising revenue and strong profit growth, which were followed by a slowdown even before the onset of coronavirus. The company has cut a large number of staff this year and has become a much leaner operation, which should position it for good profits once tourism starts picking up.
But maybe rather than pay the full price when the stock IPOs next week it would be better to wait for the dips. And given the coronavirus outlook for the next few months, dips there will be.
