Airbnb’s December IPO could value the home-sharing service at $30 billion.
Thanks to the leadership of CEO Brian Chesky, I think ABNB shares will continue to rise over the long run.
His nimble response to this spring’s crushing contraction in demand convinces me that he will respond well to jolting surprises likely to continue into 2021 and 2022.
Yet I would wait to buy these shares until after the IPO’s dust storm has settled.
(I have no financial interest in the securities mentioned).
Airbnb’s IPO To Value The Company At $30 Billion
Airbnb — founded in 2008 — will go public in a December 2020 IPO. With at least four million hosts and 7.4 million listings of home rentals and “experiences such as guided wine tours, mountaintop yoga and pottery classes,” the Wall Street Journal reports that the IPO will value the company at about $30 billion.
Based on the rapid drop in Airbnb’s value earlier in the year, that valuation is an impressive accomplishment. In 2017, Airbnb was valued at $31 billion — but its worth tumbled 42% to $18 billion earlier this year when the company “raced to secure a loan as bookings fell during the pandemic,” noted the Journal.
Airbnb typically does the best in the third quarter when people use its service for their summer vacations. 2020’s seasonality was far more challenging than in previous years. For the quarter ending this June, revenue fell 72% and its loss nearly doubled.
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In the September-ending quarter, a surprising increase in local stays caused revenue to fall a relatively modest 18% business and while steep cost cuts enabled Airbnb to earn a profit — this year of $219 million — as it usually does in the third quarter, noted the Journal.
How Brian Chesky Pulled Airbnb From The Brink
Winning companies track closely the changing pulse of demand for their products and take the right action ahead of their rivals.
Chesky demonstrated that he can make such winning moves. How so? As the Journal wrote, in the second quarter of 2020 he “pivoted quickly to raising capital to keep the business afloat, laid off a quarter of staff and shed noncore businesses.” As a result, Airbnb’s total expenses for the first nine months of 2022 dropped 22%.
Chesky did not simply cut costs — he captured a new revenue stream by ordering the redesign of Airbnb’s app and website to respond to a new source of demand. As the pandemic expanded, people took vacations from their abodes — often small urban apartments — by visiting less densely populated neighboring communities. Rather than stay in hotels, these local vacationers chose Airbnbs as safer alternatives.
The Risks Of Investing In Airbnb
Airbnb has lost money every year — its cumulative losses since 2008 total $2.8 billion — and its revenues have been declining in 2022. Yet investors may be willing to overlook those problems because they expect revenue growth to return once the pandemic ends.
Here are four other risks that investors may be less willing to forgive:
- Cities may implement zoning restrictions on short-term rentals
- Public company regulations will make it more essential that Airbnb does a better job of “policing crime and promoting safety,” wrote the Journal
- Requests to share data about users in China and continued deterioration of relations between the U.S. and China could hurt Airbnb’s growth prospects there
- Drop in demand as the so-called second wave of Covid-19 infections accelerates through the beginning of 2021, noted CNBC.
There is hope that Covid-19 vaccines will inoculate people in 2021 — which raises questions such as: Will those vaccines will be effective? When will the pandemic be brought under control? Will people resume travel as they did before the pandemic?
Don’t Rush In To Airbnb Stock
If Chesky remains CEO over the next several years, Airbnb is likely to navigate these uncertainties with aplomb.
I see no reason to rush into these shares. How so? I think an IPO feeding frenzy will drive up the price, lower revenues and bigger losses could be reported in the final quarter of 2020, expiring lock-up agreements could add to the stock supply, and the pandemic could persist longer than most people hope.
If these things happen, you may be better off waiting so you can buy Airbnb stock at a lower price.