If there’s one thing that’s of paramount importance for businesses, it’s trust. Home-sharing network Airbnb (NASDAQ:ABNB) generally seems to have the trust of its user base. Yet, trust can easily be broken, and this should concern Airbnb stock holders.
Businesses must establish a balance between getting the most money out of their clients and keeping those clients happy so that they’ll come back.
As I will explain momentarily, I believe that Airbnb is making a crucial misstep in its terms and conditions. And with that, the company is in danger of damaging its reputation.
It might or might not be a deal breaker for prospective Airbnb stock buyers. But at the very least, it’s a factor worth considering. If the clients don’t feel that they can trust Airbnb, then the shareholders ought to be worried.
A Closer Look at Airbnb Stock
Before we delve into what’s been going on at Airbnb, it’s important to provide an overview of the price action of the stock.
It’s fair to say that this stock has moved quite far in a short period of time. Value-focused investors might contend that Airbnb has gone too far, too fast.
There may be some truth to that argument as Airbnb stock has moved far beyond its original initial public offering (IPO) price. Last year, Airbnb targeted an IPO price between $44 to $50 per share.
Later, the company raised it to a range of $56 to $60 per share. Yet, even that higher price range was nothing compared to what would happen soon after the IPO.
Stunningly, Airbnb stock opened for public trading on the Nasdaq Exchange at $146 and reached a peak of $165 on that day. The stock ended that day at $144.71 for a whopping 112.8% single-session gain.
Taking a Cautious Stance
Today, I’m not advising that people should just dump their Airbnb stock shares. What I am advising, however, is awareness and caution.
In the middle of January, Airbnb stock jumped by nearly 20% in a week. Reportedly, during this time Airbnb canceled all reservations made for Washington, D.C., during the inauguration period for President Joseph Biden.
The company also prevented its users from creating new reservations for that time and place. Without a doubt, Airbnb was keeping its clients’ safety in mind due to concerns over the possibility of civil unrest.
Sure, it’s inconvenient for some travelers to have to cancel their reservations. Nonetheless, I respect Airbnb’s decision on this matter.
And here’s the thing that I want to point out. Airbnb will provide refunds to the guests whose reservations were canceled due to the inauguration-related concerns.
A Policy Misstep
Providing refunds was the right thing for Airbnb to do. It should help to fortify the company’s reputation as a trustworthy business.
And yet, this seems quite inconsistent with another one of Airbnb’s policies. Namely, Airbnb is refusing to issue refunds for trips canceled due to the novel coronavirus pandemic.
There are instances in which travelers couldn’t embark on their getaways because a national, state or local government imposed an unexpected lockdown.
For clients who booked their travel accommodations through Airbnb after March 15 but want or need to cancel due to Covid-19, no refund-policy coverage is offered by Airbnb unless the host’s terms and conditions include a refund clause.
Surprisingly, Airbnb’s refund policy refuses to recognize Covid-19 lockdowns as an “extenuating circumstance.” This has undoubtedly left some clients frustrated as they were merely trying to follow the lockdown rules.
This could be viewed as a policy misstep as it’s not going to help build trust between Airbnb and its users.
The Bottom Line
Value-focused investors might be concerned that Airbnb stock has moved too quickly to the upside.
At the same time, some traders may worry that Airbnb’s lockdown-related refund policy is flawed. Therefore, it’s not unreasonable to consider lightening up on one’s position in Airbnb stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.