Throughout 2020, commentators have recommended a number of “recovery stocks” in response to the onset of the novel coronavirus. Home-sharing network Airbnb (NASDAQ:ABNB) struggled as Covid-19 spread this year. Yet, many traders viewed the recent initial public offering (IPO) of Airbnb stock as a chance to capitalize on America’s economic rebound.
More specifically, some folks who jumped on the Airbnb stock IPO likely held a long-term view that the nation’s travelers would be willing to venture outside of their local areas in 2021.
This may indeed be a reasonable expectation. Yet, as we’ll explore today, there are concerns that forward-looking traders front-ran Airbnb stock up to an unreasonable price point right out of the gate.
So, are the skeptics right to condemn the Airbnb stock frenzy as a textbook example of IPO mania? Or, will the bears be disappointed as the stock wends its way toward higher price levels? Unpack your bags and settle in as this is sure to be an unforgettable trip.
A Closer Look at Airbnb Stock
As Matt McCall and the InvestorPlace research staff reported, Airbnb had previously targeted an IPO price between $44 to $50 per share. Later, the company raised it to a range of $56 to $60 per share.
Thus, there was some price inflation happening even prior to the Dec. 10 Airbnb stock IPO. However, that was a mere pittance compared to what was coming.
If you can believe it, Airbnb stock opened for public trading on the Nasdaq Exchange at $146 and reached a high point of $165 on that day. The share price closed on that day at $144.71, but that’s still a jaw-dropping 112.8% single-session gain.
Upon learning that the stock could debut at more than $139 per share, Airbnb CEO Brian Chesky commented, “I don’t know what else to say… I’m very humbled by it.”
And really, what else could he have said about it? You can’t get a much more bullish result than what took place on that day. In any case, as of Dec. 11, the Airbnb stock buyers managed to keep the share price at the $139 level, so there wasn’t any immediate post-IPO crash.
Americans Are Itching to Travel
If you’re concerned about Airbnb stock’s sky-high valuation, I totally get it. There’s no need to jump into this particular trade if you’re a staunch contrarian.
On the other hand, there’s an argument to be made in favor of higher prices for Airbnb stock. The primary value proposition here is that this isn’t just a “recovery stock,” as an economic rebound might not be needed for the travel market to thrive.
Even if American families haven’t enjoyed much of an economic recovery yet, they’re still itching to travel. There’s data provided by the Transportation Security Administration (TSA) to prove this.
During the three days ending on Nov. 22, despite a recommendation from the Centers for Disease Control and Prevention that Americans should skip Thanksgiving travel, 3,052,139 people went through TSA checkpoints.
Steering Through the Crisis
Moreover, on Nov. 25, the day before Thanksgiving, the TSA recorded 1,070,967 travelers clearing airport security. So clearly, Americans are ready and willing to travel, and that’s great news for Airbnb and its stakeholders.
Besides, Airbnb deserves credit for handling the Covid-19 crisis well. Earlier this year, the company enacted a blanket refund policy and paid out $1 billion in cancellation fees.
Without a doubt, that must have been painful for Airbnb on a fiscal level. However, it was the right thing to do. Furthermore, it likely established a measure of trust between the company and the clients.
This strategy may have paid off as Airbnb’s third-quarter revenues declined by only 18%. And if a Covid-19 vaccine becomes widely accessible to the public in the near future, that could certainly provide a tailwind for the company.
As Greylock Partners‘ Reid Hoffman sums it up, “Today, Airbnb is thriving, and when effective vaccines are broadly available, it will no doubt adapt to those changed circumstances as well.”
The Bottom Line
Admittedly, the concerns surrounding Airbnb stock are not unreasonable. There’s no denying that the share price is elevated. So, risk-averse investors might want to stay on the sidelines.
For adventurous market travelers, however, a stake in Airbnb stock might be worth considering. Americans, as the data reflects, are itching to travel again. And, it’s quite likely that a widely available Covid-19 vaccine would boost Airbnb’s business.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
