Before the novel coronavirus pandemic, one of the most hotly anticipated initial public offerings was Airbnb. Essentially, the Uber (NYSE:UBER) of the hospitality and lodging sector, the technology firm at heart disrupted one of human civilization’s oldest industries, allowing everyday folks to be hoteliers. Of course, the Covid-19 had other plans, disrupting the intended filing of the Airbnb IPO in March.
However, last month, the popular, though controversial, company quietly signaled again that it was ready to go public. Management confidentially filed its IPO paperwork with the Securities and Exchange Commission in mid-August. Although we don’t know the core details, Fast Company noted that in Airbnb’s last funding round in April, the organization was valued at $18 billion. That’s down significantly from its $31 billion valuation from 2017.
At the same time, contrarian investors may be worried if it’s an ideal time to invest in Airbnb stock. While the timing of the reupped Airbnb IPO is curious — we are still in the middle of the pandemic — it does demonstrate management’s confidence in the business.
Furthermore, no one is anticipating that we will permanently live with social distancing protocols. No matter what, we must get on with our lives, lest we risk economic collapse. And before the pandemic, as I mentioned, the Airbnb IPO was a hot topic. Now, it’s possible to invest in Airbnb stock at a steep, fundamental discount.
But is this a wise move? Here’s a deeper look at the pros and cons of the Airbnb IPO.
Why the Airbnb IPO Makes Sense
Upon first glance, it’s easy to ask, why now? Really, it’s a logical reaction. With so many questions regarding a potential second wave and along with economic pressures, anything hospitality related seems incredibly risky.
But for starters, Fast Company noted a cynical though important catalyst: insider pressure. Specifically, insiders, mostly employees, holding options that expire this year.
Fundamentally, though, the Airbnb IPO has significant momentum. Primarily, booking rates are exceeding expectations. As well, this counterintuitive phenomenon levers credibility. Recall that the national unemployment rate in August fell to 8.4%, with total nonfarm payroll employment rising by 1.4 million. That, in itself, demonstrates an economic recovery and the potential of pent-up demand.
But within the better-than-expected jobs numbers are the finer details. For instance, adult workers with a bachelor’s degree or higher have an unemployment rate of 5.3%. These are the folks that are largely working from home and who may have benefitted from the coronavirus. By that, I mean not having to deal with daily unpleasantries such as sitting in rush-hour traffic.
For this demographic, they are more likely to take advantage of Airbnb’s services. As a segue, those who are operating remotely have every incentive to move out temporarily. Back in late March, The Washington Post reported on this trend, calling it the “great American migration of 2020.” With an internet-connected laptop connecting urbanites to their top-dollar desk jobs, they could “camp out” in rural areas until the pandemic blew over.
Indeed, Airbnb saw a significant uptick in rural hosts listing their properties for rent. Thus, the Airbnb IPO isn’t a completely irrational concept in the present environment.
Coronavirus Is Still a Crushing Headwind
While the finer details of the Airbnb IPO appear positive, critics may point to exactly that: the tailwinds are finer details. When you broaden the narrative, suddenly, the picture doesn’t look too rosy. Hence, you may want to wait before deciding to invest in Airbnb stock.
First, while the platform is a popular one in the U.S., the cities with the most listings are not located in this country. For instance, on a report dated September 2018, London had 64,373 listings while Paris had 47,584. True, as of June 2019, Kissimmee, Florida featured 47,875 listings.
But let me ask you something: who the heck wants to go to Kissimmee over Paris?
Moreover, the top 10 most-popular Airbnb cities are mostly located in the eastern U.S. Only two, Los Angeles and San Diego (three, if you include Las Vegas) are located in the western part of the country. And with Americans banned from traveling to most countries in the world, profitable staycations from Airbnb’s perspective are limited to the geographical extremes of the U.S.
This raises a key question: are people making these cross-country flights? From “reverse-engineering” available data, the answer is unfortunately no.
According to screening data from the Transportation Security Administration, total air passengers from April to June of this year increased 341%. During the same period, total air passenger miles increased only 28%. In other words, more people are flying but they’re traveling smaller distances.
That implies Airbnb’s top destination cities are limited to local demand. You can also infer that from vehicle miles traveled, which increased nearly 44% in the aforementioned period. As well, vehicle miles traveled was within 15% of the year-ago level on June 2020.
Again, people are traveling but not that far.
Should You Invest in Airbnb Stock?
Looking for comparisons before you invest in Airbnb stock? Three stocks come up. TripAdvisor (NASDAQ:TRIP) –which owns FlipKey, Housetrip, Viator — is down 49% in the last 12 months. Expedia (NASDAQ:EXPE), which owns brands such as HomeAway and VRBO, is off 28%. And, Booking Holdings (NASDAQ:BKNG) — which owns Bookings.com, Priceline, Agoda, Kayak — is down 13.2%. The S&P 500 index is up 10.4% in that period.
I’ve covered several private investing opportunities over the last several weeks. Generally, I’ve given the benefit of the doubt to the startups that I covered.
While I understand that Airbnb is about to go public, this is the first time where I’m more skeptical than anything. For instance, the travel data above is a clear indicator that the consumer economy doesn’t favor the hospitality industry. Thus, it confirms the valuation cut isn’t really a discount.
But more worryingly, the Airbnb IPO could tumble, especially if we have a second wave. Further, the bifurcated nature of the economic “recovery” is a huge headwind. With multiple questions imposing a dark cloud on this debut, I’m going to sit on the sidelines for now.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.