Our son wants to see us at Christmas, but we don’t want him to fly. A hotel would feel miserable, so we’re getting an Airbnb. It’s a full apartment, with kitchen and washer, just a mile from his place; so, happy days.
The story illustrates how deeply embedded Airbnb has become just 12 years after its founding. But does that mean we should be buying its stock, with its projected valuation of nearly $35 billion?
Airbnb did a 2017 funding that valued it at $31 billion. Before the pandemic, CEO Brian Chesky said it was profitable during the summer quarter. Despite the pandemic, it should do $3.5 billion of business this year.
It’s Not WeWork
Airbnb says it will sell 51.9 million shares later this month at $44-$50/each, worth up to $2.6 billion.
While a lot of companies have come public this year through Special Purpose Acquisition Companies (SPACs), Airbnb is doing this the old-fashioned way, with an S-1 registration. The stock will be listed on the NASDAQ under the symbol ABNB.
Airbnb provides a platform through which people can rent homes, apartments, or just bedrooms. When our son got stuck between leases last year, he rented a bedroom through Airbnb. When a developer decided to turn an old phone switching center near me into apartments, I saw it as an Airbnb.
According to the S-1, Airbnb is a highly seasonal business. While profitable during the summer, it had a loss of $674 million for all of 2019, and nearly $700 million for the first nine months of 2020. This came despite cutting marketing by half and administrative costs by 20%, creating a restructuring charge of $137 million. During the worst of the panic, revenue was down 70%.
Despite this, the company still had cash of almost $4.5 billion at the end of September, with $3.2 billion in debt convertible into stock.
Is It Uber?
Despite what should be solid post-pandemic numbers, reviews of Airbnb’s investor roadshow have been negative. It emphasized the business’ resiliency, and the fact it was cash flow positive in 2019.
The company has been operating long enough to make enemies. Investors buy rental properties in tourist cities and list them through the service, pricing out longtime residents. By renting out a place by the night or the week, they can make a profit even if the spot sits empty most of the time. When the pandemic hit, thousands of these properties suddenly hit the market.
This means that, as with Uber (NASDAQ:UBER), Airbnb has regulatory risks. Cities want to limit how much of their housing is under the company’s virtual control. At the same time, Airbnb wants its own protections, such as from Google’s Travel and Vacation Rental service.
The Bottom Line on Airbnb IPO
The bullish case for Airbnb is that it could become more valuable than Booking.com parent Booking Holdings (NASDAQ:BKNG), which has a market cap of $85 billion. Most of its listings are still from individual owners, not corporates.
Airbnb’s new “experiences” service, people hiring themselves out as tour guides, could become a $1.4 trillion market, employing millions of people. That’s almost as much as the $1.8 trillion that could come from short-term rentals.
But there are few companies worth 10 times their revenue. Most are cloud software plays, where rental costs are declining. Airbnb has physical costs and, as its complaints against Google indicate, growing competition.
Airbnb has found the perfect window for its IPO. But I think you’ll be able to get in for less next spring.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn.