It appears that one of the world’s most valuable startups – Airbnb – may finally make its long awaited debut on Wall Street. The travel technology company confidentially submitted a draft IPO registration to the SEC in August, according to Bloomberg. This move naturally prompts the obvious question: Should you invest in Airbnb stock if/when the IPO does happen?
My answer is simple. Yes.
That may seem counter-intuitive. After all, the Covid-19 pandemic has killed the global travel industry, and caused Airbnb’s revenues to collapse in 2020. But:
- Airbnb’s valuation has collapsed, too.
- The company successfully innovated amid the pandemic to sustain a healthy revenue base.
- Travel demand will rebound in 2021/22.
- Robust consumer thirst for experiences – both virtual and physical – implies that Airbnb will return to big growth post-2020 and sustain that big growth for the next five to 10 years.
So, for all those reasons, I say yes, you should invest in Airbnb stock following the IPO.
Here’s a deeper look.
Although Airbnb’s valuation does not change on a day-to-day basis as the valuations on public companies like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), Airbnb’s valuation does change every time the company raises money.
It just so happens that Airbnb has raised money in the Covid-19 world. Back in April, Airbnb raised $1 billion in debt to help the company get through the Covid-19 crisis. At that financing round, Airbnb fetched an $18 billion valuation.
That’s a steep 42% drop from the company’s prior $31 billion valuation.
And, perhaps not coincidentally, it’s largely consistent with Lyft and Uber stock price declines. Uber and Lyft were both trading ~40% off their early 2020 highs in April.
Today, Uber stock – which is a better comp for Airbnb because both companies have diversity beyond core ride-sharing and core renting – trades about 20% off its early 2020 highs.
Extrapolating that out, one can reasonably assume that if Airbnb does IPO in late 2020 or early 2021, the Airbnb IPO valuation will likely be around $25 billion, or 20% below its pre-Covid valuation.
This valuation cut represents an attractive opportunity to buy Airbnb stock for the long run.
Innovation During Covid-19
Airbnb management didn’t just sit on the their hands and let the Covid-19 pandemic destroy the company’s core travel business.
Instead – behind CEO Brian Chesky, who said that “every one of these crises is going to lead to a new point of innovation” – Airbnb innovated and pivoted to adapt to a world temporarily shut down by a pandemic.
Specifically, the company re-branded as an online experiences marketplace. Consumers can book virtual appointments and meetings with travel gurus and different individuals offering online classes and experiences. Forbes offered the examples of learning how to “mix up sangrias from a group of drag queens in Portugal,” meditate with “sleepy sheep in the United Kingdom” and “dance tango in Argentina.”
In so doing, Airbnb made itself relevant to consumers again. This was even during a time when its core travel and rental business was entirely shut down.
That’s impressive innovation. And it speaks to the move-it-forward culture at Airbnb, which creates a solid foundation for sustained long-term growth, regardless of what curve balls the world throws at the company.
Rebounding Travel Demand
Travel demand won’t stay dead forever.
With Covid-19 hysteria fading and mobility restrictions easing, consumers can and are traveling again. Not surprisingly, Airbnb’s bookings are rebounding, from a 70% drop in May, to a 30% drop in June. Given continued gains in U.S. air travel traffic since June, it is quite likely that Airbnb’s bookings are now trending in the down 10% to down 20% range, and potentially even better than that given robust staycationing trends.
In other words, it is quite likely that Airbnb is almost back to normal bookings levels, and we still don’t have a Covid-19 vaccine.
Imagine what will happen when we do finally get a Covid-19 vaccine that is safe and easily accessible to the general public. Pent-up consumer travel demand will be unleashed. And the Airbnb growth narrative will resume, with growth rates like recovering to the 35% levels they saw in 2019.
As all that happens, it is quite likely that the valuation on Airbnb stock in 2021 recovers to pre-Covid levels – and potentially even higher.
Endless Consumer Thirst for Experiences
If the Covid-19 pandemic underscored anything about Airbnb and the travel industry, it’s these two things:
- Airbnb isn’t a travel company; it’s an experiences company. Regardless of the status of the broader travel environment, Airbnb will be there for consumers to match them to great experiences. These can be physical experiences like a great beach house for a weekend, or virtual experiences like learning how to tango.
- Consumer demand for experiences is resilient. Whether they are out and about exploring the world, or stuck at home browsing the internet, consumers want great experiences. They want things which will entertain them, engage them and make them happy. The only thing that changes is the type of experiences. Consumer demand for experiences doesn’t change, ever. It’s always robust.
Given these two realities, the writing is on the wall for Airbnb.
Over the next five to 10 years, we will increasingly pivot into an experience-driven economy, and Airbnb will become a go-to marketplace to match them with great experiences, both virtual and physical.
To that end, those who invest in Airbnb stock will see a compelling, multiyear growth narrative that’s worth investing in once the IPO happens.
Should You Invest in Airbnb Stock?
Covid-19 hit Airbnb hard. But it didn’t kill the company. If anything, it only made the company stronger, by forcing management to widen the scope of Airbnb’s platform to include virtual experiences.
Now, Airbnb is ready to rebound. It really is no wonder that the company plans to go public within the next six months.
I say buy Airbnb stock after the IPO, and hold for the next five to 10 years. This is a winner.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm.