Airbnb IPO: read this before you invest in the stock
14:06, 4 December 2020
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The much-anticipated Airbnb initial public offering (IPO) is set to launch this month, after it was delayed in the spring by the Covid-19 pandemic. The listing of ABNB, which has been expected for the past few years, could raise up to $2.5bn for the US-based online vacation rental marketplace.
One of the original companies to establish the sharing economy, Airbnb is noteworthy in that it does not actually own any properties. Its online platform connects property owners around the world with renters looking for an alternative to the hotel experience. But will this approach help Airbnb’s market cap to soar after the shares go live?
Investors will be looking closely at the performance of the stock as trading gets underway on the Airbnb IPO date, after Uber (UBER) and Lyft (LYFT) – also early entrants in the sharing economy – launched their rather disappointing offerings last year.
So, is Airbnb stock a good investment? Should you buy it right after the IPO happens or wait for a better entry point?
Read on for an overview of the company’s recent performance and details of the stock listing.
The much-anticipated Airbnb initial public offering (IPO) is set to launch this month, after it was delayed in the spring by the Covid-19 pandemic. The listing of ABNB, which has been expected for the past few years, could raise up to $2.5bn for the US-based online vacation rental marketplace.
One of the original companies to establish the sharing economy, Airbnb is noteworthy in that it does not actually own any properties. Its online platform connects property owners around the world with renters looking for an alternative to the hotel experience. But will this approach help Airbnb’s market cap to soar after the shares go live?
Investors will be looking closely at the performance of the stock as trading gets underway on the Airbnb IPO date, after Uber (UBER) and Lyft (LYFT) – also early entrants in the sharing economy – launched their rather disappointing offerings last year.
So, is Airbnb stock a good investment? Should you buy it right after the IPO happens or wait for a better entry point?
Read on for an overview of the company’s recent performance and details of the stock listing.
Airbnb faces travel industry turmoil during pandemic
Airbnb is going public at a difficult time for the travel industry. But the company is not unaccustomed to challenging conditions, having been formed during the 2008 financial crisis.
From its founders renting airbeds in their apartment in San Francisco to conference attendees in 2007, Airbnb has grown into a network of more than four million hosts listing private rooms, apartments and villas for rent, from one night to extended stays, in more than 220 countries and territories around the world. Since its launch, Airbnb hosts have made over 825 million bookings and have cumulatively earned over $110bn, the company said in its SEC filing.
“Airbnb” has become a verb among travellers who opt for the experience of living like a local in places they visit rather than staying in hotels. The company is looking to leverage that popularity in demand for Airbnb shares. Its services have also expanded beyond accommodation rentals to include Airbnb Experiences – activities designed and led by locals.
The SEC filing stated, “in early 2020, as Covid-19 disrupted travel across the world, Airbnb’s business declined significantly. But within two months, our business model started to rebound even with limited international travel, demonstrating its resilience.”
Airbnb’s value had been estimated at $31bn at the start of 2020, but the funding it secured at the height of Covid-related lockdowns cut its valuation to $18bn. The estimated $35bn IPO valuation would return its value to the pre-pandemic level.
While the pandemic continues to disrupt holiday travel, it is also presenting new opportunities that could lift the value of Airbnb stock over time. The company said in its S-1 application: “We believe that the lines between travel and living are blurring, and the global pandemic has accelerated the ability to live anywhere. Our platform has proven adaptable to serve these new ways of travelling.”
So far this year, “Covid-19 has materially adversely affected our recent operating and financial results and is continuing to materially adversely impact our long-term operating and financial results,” the filing noted.
Airbnb reported a 39 per cent decline in Gross Booking Value (GBV) in the first nine months of 2020 to $18bn, down from $29.4bn the same period last year. GBV represents the dollar value of bookings on the platform including fees and taxes. The company’s net loss jumped by 116 per cent to $696.9m and its net cash position turned negative, according to the SEC application.
The company raised $2bn from term loans in April 2020 to shore up its finances. “We believe these incremental funds and our rapid management of expenses, in addition to our existing cash position, will help us to prudently manage our business through the effects of the Covid-19 pandemic,” the filing said.
Potential investors will be wary of the continued uncertainty the company faces in the short term and how that may affect its financial performance going and the Airbnb stock price.
The company noted: “In light of the evolving nature of Covid-19 and the uncertainty it has produced around the world, we do not believe it is possible to predict Covid-19’s cumulative and ultimate impact on our future business, results of operations, and financial condition.” That, in turn, will affect the valuation for Airbnb stock.
From January 1, 2011, to December 31, 2019, Airbnb generated $1bn of net cash from operating activities and spent $507m on property and equipment, resulting in cumulative positive free cash flow of $520.1m over the period for reinvestment in the business.
“We believe that we are still early in the global shift in consumer preferences toward one-of-a-kind stays and experiences, which provides an opportunity to further grow our community and business. As a result, we have consistently reinvested the Free Cash Flow that we have generated to meet our business needs and expand our operations.”
After the listing, Airbnb will continue to reinvest its cash flow and does not intend to pay investors a dividend on ABNB stock for the time being. The company plans to use the IPO proceeds “for general corporate purposes, including working capital, operating expenses, and capital expenditures.”
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Airbnb IPO: what to expect and when
If you are planning to trade the stock as soon as it goes live on the Airbnb IPO date 2020, here is what you need to know.
When is Airbnb’s IPO? The stock will be priced on December 9 and start trading on the Nasdaq exchange under the ticker symbol ABNB the next day, December 10.
What will the Airbnb IPO stock price be at launch? The company plans to price the IPO between $44 per share and $50 per share.
What is the Airbnb IPO valuation? The $44-50 per share price range with an offering of 51.9 million shares, which includes 1,914,894 shares of selling stockholders, puts the valuation of the listing at $2.2-$2.59bn, making it one of the largest IPOs of 2020.
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