Airbnb – Are they Worth your Next Investment?

The share price of Airbnb has grown fast since the company’s IPO back in December. Despite the pretty bad year 2020 for the travel industry and the company itself, Airbnb’s stock price is trading at $190 – almost triple its IPO price of $68 per share. With a market capitalization of about $114 billion, Airbnb has overshadowed the combined valuations of its principal rivals – Booking and Expedia.

An investor who missed the rally may ask:” Should I buy Airbnb now to prevent the price soar, or wait for a lower price?” But first, let us understand why people love the company so much.

Excellent, Highly Scalable Business

Airbnb is quite a CV of the sharing economy. Alongside UBER, the web-based app that is making capital assets available online, and easily rentable with just a smartphone in your hands, has rewritten the transportation rules, building up a $60 billion empire. Airbnb has done the same for hospitality.

The platform connects hosts, those who own homes, and its users, people searching for a place to stay. Airbnb caters to needs that go beyond what traditional travel establishments and hotels offer. They provide facilities like lower prices and community living even in areas that lack hotels.

In 2009, the company was among other start-ups and scored its first funding from several venture capitalists and its very first investor, Y Combinator. Airbnb’s potential growth was obvious, but hardly anyone knew how fast and high it could fly.

Pre-pandemic the company was growing rapidly.

For instance, its 2019 gross booking value (GBV) increased almost 29% and revenue increased 32%. Then Covid-19 hit. GBV dropped 37% in 2020, and its revenue dropped 30%.

By April 2020 bookings had slumped 72% year on year yet recovered to 70% of pre-Covid levels after that. You may ask how has this happened?

Lockdowns canceled almost all long-distance travel, but it was not a “big” problem for Airbnb. Domestic reservations are up because people just don’t like to stay home. Moreover, people started to combine work-from-home and travel resulting in longer stays.

The Economist discovered that the average length of stay in June was a week, almost double compared to the pre-pandemic, and the share itself of domestic reservations doubled to 80% with a “200 miles from home” bookings generating 56% compared to 33%. In the very first earnings report back in February, Airbnb revealed a 22% year-over-year slash in revenue. It was a much better result compared to the 72% drop suffered in the Q2 of 2020.

All said above confesses the flexibility and resiliency of the Airbnb business model even in unfortunate circumstances.

What Happens Next?

First, Airbnb is a very recognizable brand – which is important nowadays. The global travel industry estimates its total addressable market of about $3.4 trillion. In fact, Airbnb only took about 0.5% in 2020 with a GBV of $17.99 billion (half compared to 2019 $38 billion).

To extend its business, Airbnb is making moves from a B&B provider into a global travel marketplace partnering with hotels, tour guides, and airlines. Also, the company sees the key to growth in what it has done up to this point:

1. Actively growing its community of hosts. There are quite a lot actually – about 4 million hosts who have placed more than five million listings.
2. Opening in new markets. The company covers more than 220 countries and regions around the globe.
3. Improving its platform.
4. Starting to buy its own property.

What Hedge Funds Think?

Some researchers have shown that smart money investors’ returns have been amazing and sometimes it is wise to check what big fishes are interested in buying. Big investors were taking an optimistic view of the company. At Q4’s end 68 hedge funds were bullish on the Airbnb stock investing in total about $1611 million. The biggest investments were made by Silver Lake Partners, which reported holding $375.5 million worth of stock, in the 2nd place was SCGE Management with $246.8 million in shares.

In terms of weights assigned to each portfolio position, Glade Brook Capital Partners allocated the biggest weight to ABNB stock – 100% of its 13F portfolio. Let’s be fair – Airbnb is not the most popular stock right now. It’s not even in the top 30 most popular stocks among hedges, yet interest is above average.

So, Should you Buy Airbnb Stock?

Few can argue that Airbnb has changed the travel and lodging industry, yet the stock is no slam dunk. The main debate is – is the stock not extremely overpriced? On one hand, brand awareness is strong, and there are so many possibilities for the company’s expansion. On the other hand, the bad part is that you really must pay a premium price right now for the company that had a year of sales declines and is posting losses.

Moreover, it’s trading at a multiple of 59 times sales – a lot more than the rivals. And the rivals do not sleep either and will soon compete harder than ever building up their ecosystems. Yet, Amazon, Netflix, Expedia, and others are rising amid increasing rivalry and elevated multiples.

So you really can make profits out of Airbnb, but with that high market cap already gained I’d keep hopes for BIG gains. Surely, Airbnb has a big potential, but I’d say a long could be placed – but at a more favorable price.