I’m still waiting for the right moment to buy in to Airbnb (NASDAQ:ABNB). Maybe that dip will never materialize, but that doesn’t mean we should chase Airbnb stock at any price.
Airbnb went public in December and still has its lock-up expiration coming up in a few months. Further, there’s been a lot of enthusiasm over initial public offerings (IPOs) and special purpose acquisition company (SPAC) offerings. While the company didn’t come public via the SPAC route, I think it’s fair to say both groups have been robust in terms of euphoria.
Currently sporting a market capitalization of $125 billion, Airbnb has not given retail investors an opportunity to get long at a more reasonable valuation.
Obviously with the stock up more than 50% from the low in mid-December, one could make the case that that was the reasonable spot to buy in. I’m not so sure, though.
Airbnb was looking to price its IPO between $44 and $50. It then raised that range to $56 to $60, before settling on $68 a share. Already the stock had “climbed” more than 44% from the midpoint of its initial IPO range.
Then shares exploded out of the gate, opening at $146 and climbing as high as $165 on the first day.
So who made out? The early investors — not retail investors. That’s no surprise to anyone, but it doesn’t make you feel great about chasing the stock up north of $200 when they were initially looking to price this stock below $50 two months ago.
On top of that, there’s this consideration: Airbnb was caught so flat-footed by the pandemic that it was forced into subpar deals to maintain liquidity.
In January, I wrote that Airbnb “laid off staff, took a $1 billion loan with a 10% interest rate and offered warrants to investors valuing the company at $18 billion. That was a huge drop from its prior $31 billion valuation.”
Granted, we can give management a pass for not foreseeing the pandemic — no one really did. But given Airbnb’s unicorn status, it shouldn’t have been in a position to accept poor terms in the first place.
So Do We Like Airbnb Stock?
Do we like Airbnb stock? Yes and no. Or should I say, not yet.
I absolutely love the Airbnb platform. Renting short term or long term, rooms or entire places — it’s a great resource for travelers. It’s simple to use and Airbnb doesn’t carry an inventory.
I just love the platform and the fact that it’s becoming a “verb stock,” like Uber (NYSE:UBER).
However, I don’t love the valuation and I don’t love the fact that we never really got a great opportunity to buy in. Again, in hindsight the dip toward $125 obviously looks attractive. At the time though, it wasn’t quite so obvious.
In any regard, I try to look at the bigger picture. At a $112 billion valuation, it’s hard to imagine Airbnb stock commanding a $250 billion valuation in the near term. However, it’s not that hard to picture it with a $60 to $80 billion valuation — particularly if we get a market-wide correction.
Airbnb is forecast to do “just” $3.27 billion in sales for 2020. But given the pandemic, we can’t expect robust sales. However, I did expect a more impressive rebound in revenue for 2021.
Analysts expect revenue of $4.52 billion, up about 37%. That’s solid, but after a year like 2020, I would have thought better. On the plus side, consensus estimates call for $6.2 billion in revenue for 2022, up another 37%.
It bears repeating: This is very solid revenue growth over several years.
However, the valuation is stretched. Airbnb stock trades at almost 35 times 2020 sales, 24 times 2021 estimates and more than 17 times 2022 expectations. The term “rich” seems like an understatement.
Bottom Line on ABNB Stock
For me, Airbnb is a tough one. I use the platform often and I really like the business. I was praying retail investors like myself would get a chance at this one. Perhaps I’m dead wrong with this one and will never get a chance at it.
But from my vantage point, I see a stock that:
- Was incredibly well-publicized and is well-known (read: hyped up and big excitement)
- Raised its IPO price multiple times before opening higher by more than 100%
- Hasn’t really pulled back all that much
- Came public with huge IPO and SPAC momentum, while U.S. indices remain at all-time highs
- Is overvalued based on its consensus expectations
Paying a premium is one thing, while chasing it any price is another. Is it even worth mentioning that while the travel industry will come back ferociously, that it remains marred with negative growth? Or that Airbnb doesn’t yet turn a profit?
I may be coming across as salty about Airbnb stock, but that’s not the case. I just feel like there will be a better opportunity down the road.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.