Is the stock market obsessed over initial public offerings (IPO’s)? That question was raised by some folks who witnessed the buzz surrounding the Airbnb (NASDAQ:ABNB) IPO and the rapid ascent of Airbnb stock.
Some onlookers may even claim that Airbnb stock is the poster child of IPO mania. By extension, they might view the fervor as an indication that market traders have become too speculative.
However, it’s not really fair to generalize all IPO stocks as speculative. After all, even today’s most established stocks were new and risky at one point in time.
Trends in the travel market suggest that there’s the potential for Airbnb to earn strong revenues. Therefore, perhaps it’s time for the skeptics to consider giving Airbnb stock a chance.
A Closer Look at Airbnb Stock
Airbnb stock’s initial price range was set to be between $44 and $50. However, soon Airbnb raised it to a range between $56 and $60 per share. That put the company’s valuation at $42 billion.
The next thing you know, on Dec. 9, Airbnb again raised its IPO price, this time to $68. Finally, the stock’s debut occurred on Dec. 10 with Airbnb stock opening at $146.
That day, the stock reached a high of $165 but closed at $144.71. Thus, Airbnb stock gained 112.8% for the day, more than doubling on its first day of public trading on the Nasdaq Exchange.
As of Dec. 23, Airbnb stock was trading close to the $160 area. Hence, it appears that the share price is already showing signs of stability, which is a good sign.
People Are Ready to Travel Again
I issued a bullish call on Airbnb stock on Dec. 15, citing data that points to a possible travel-market recovery in progress.
Today, I continue to stand by my thesis that a recovery in travel demand would be bullish for Airbnb and its shareholders. The onset of the novel coronavirus made it difficult for Airbnb’s business to thrive, but the data shows that many people are ready and willing to travel again.
Moreover, the Transportation Security Administration (TSA) screened 1.17 million people on Nov. 29. That’s more than one might have expected during a global pandemic. It’s a clear sign that there’s been intense pent-up demand among travelers.
Creating a Market
Even though some commentators aren’t fond of its high-flying IPO, not everyone is skeptical of Airbnb stock. For instance, Susquehanna analyst Shyam Patil initiated coverage of Airbnb stock with a price target of $185.
Patil makes an excellent point in suggesting that Airbnb isn’t just a niche leader, but perhaps even a niche innovator.
“ABNB created the short-term rental market and is the clear leader in the space.” he said. “The strong brand has created a powerful flywheel for its two-sided marketplace (guests and hosts) and enables the company to generate the significant majority of its traffic directly, which is unparalleled in the online travel sector.”
Patil also said Airbnb is trying to build an experiences business that’s still in its infancy. Furthermore, Patil estimates that the market for experiences is around $300 million.
This concept ties in to people’s pent-up desire to get out of their homes and gain new experiences in different places. There really isn’t much competition in Airbnb’s specific niche.
Sure, there are a number of different hotels to stay at, but there’s only one Airbnb. For travelers who want to cut down on travel expenses, Airbnb is a well-known alternative to hotels.
The Bottom Line
There’s data to suggest that people are ready and willing to travel again, and that’s definitely bullish for Airbnb stock.
And when it comes to serving a particular niche within the experiences business, Airbnb is both the leader and the market creator.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.