Michael_Wang_Official

Airbnb (ABNB): Everything You Need to Know for the IPO

NASDAQ:ABNB   AIRBNB INC
Airbnb is an online rental marketplace for lodging, home stays, and tourism experiences.
The company does not own any real estate listings, but offers a platform through which people can take part in the sharing economy.
Airbnb announced its filing for an initial public offering ( IPO ) in August.
In this analysis, we’ll be going over everything investors need to know about the IPO , and my own insight on whether this is a golden opportunity.

Most of the information provided below is based on the S1 Airbnb Submitted to the SEC.
Disclaimer: This is not financial advice. This is meant for educational and entertainment purposes only.


Business Model
- Airbnb connects hosts who are willing to provide room, with guests
- Airbnb profits from charging a service fee to both the host and the guest
- While it initially started off as hosts providing bedrooms, the company has managed to find and expand on different types of lodges.
- Airbnb is well known for its systematic operations; they have a unique guest/host review system, rules regarding cancellations and deposits, and is oriented and focused on building a community.

Counterparts Cases
- Airbnb’s counterparts include companies like Expedia group ( EXPE ) and Booking Holdings ( BKNG )
- It’s important to take into consideration the growing competitiveness within the booking market.
- Unlike Airbnb , both Expedia group and Booking Holdings are reporting solid earnings as their operating profits increase yoy.
- TripAdvisor (TRIP), which reported $156m in revenue for 2019 and an operating profit of $18.7m, while small, is another example of companies competing against Airbnb
- However, to be fair, these companies also all fell victim to the Covid-19 pandemic.

IPO Information
- The company will be listed on the NASDAQ exchange under the ticker ABNB
- The specific date of the IPO and price per share is yet to be officially announced.

Financials
- Due to Covid-19, the company’s revenue and profitability plummeted in 2020.
- Q2 2020 revenue was $350m, which is a 67% compared to Q2 2019, which recorded a quarterly revenue of over a billion.
- These numbers are less than half of the reported revenue for Q1 2020, of $842m
- As a result, the company’s valuation dropped from $31b to $18b.
- The fact that the company is not profitable yet is also quite fatal.
- In 2017 and 2018, there was a lot of hype around the company as they showed positive numbers for their EBITDA ( earnings before interests, taxes, depreciation, and amortization)
- But, the company has been reporting inconsistent revenue ever since, and their sales and marketing
- As of September 30 2020, the company has $2.6b in cash, which is more than numbers reported for cash and cash equivalents in 2019 and 2018.
- Nonetheless, this is way below their short term net liabilities of $4.38b, which is considered a warning sign in terms of financial stability.
- Additionally, they have $1.8b in long term debt as well.
- Taking all of this into consideration, we could make an educated guess that Airbnb is trying to seek for funds through this IPO .
- It has already undergone its Series F investments, and is a unicorn company (a private company with a valuation over $1b), which makes it difficult to receive any further meaningful investments.

Covid-19 Impact
- Airbnb is part of the industry that was arguably most heavily affected by the Covid-19 pandemic
- They had a net 4.1m cancellations in March, when fear regarding Covid-19 peaked.
- I’ve mentioned this in a previous analysis, but Covid-19 has fundamentally changed the way we live forever
- As a result, Airbnb’s goal of creating a community of hosts and guests has faced a huge obstacle, as people prefer to stay at hotels, which involve lower risk of Covid-19 infections.
- Thus, whether people would want to travel via Airbnb after the pandemic is solved still remains extremely murky, as clear solutions to the current situation are yet to be proposed.
- Unlike other large tech companies, Airbnb lacks the cash to endure a long phase of hardship.
- Due to the impact of Covid-19, the company has laid off over 1,900 employees to cut costs.

Historical Cases
- We have seen other companies within the sphere of the sharing economy take part in IPOs that have failed miserably
- Companies such as Uber Technologies (UBER) and Lyft (LYFT) are prime examples. (Refer to the charts on the right)
- They were provided multiples way above their actual value, and their stock prices eventually fell way below the IPO price.
- WeWork, once valued at $47b, failed its IPO due to massive debt and shaky corporate structures, and is now valued at $2.9b
- Given past cases of other tech companies within the realm of the sharing economy having undergone failed IPOs due to overvalued multiples, it’s important to consider why Airbnb might be exempt from this case.

Mike’s Insight
In summary, while Airbnb’s listing is arguably the most important IPO of 2020, investors need to consider all possible factors before participating in the IPO . Its growing number of users suggest that the business is on the right track over the long run, but is faced with a serious external risk that the company has no control over. As this risk extends throughout time, the more damaging it is to the fundamentals of the business, thus providing room for investors to reconsider the proper valuation of the company. In my humble opinion, given that the company goes public at a $30b valuation, I think we’d see prices drop sharply after the IPO . Nonetheless, I could consider adding it to my portfolio as we see clearer signs of the world recovering from the coronavirus.

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I would also appreciate it if you could leave a comment below with some original insight :)

Comments

People prefer ABNB over hotels base on price and privacy. ABNB could easily expand their business to anything shares on the planet and it is coming.
+11 Reply
@Hmongpress, As long as the entire industry can recover from covid, absolutely. Thanks for commenting!
+2 Reply
kin0 Hmongpress
@Hmongpress, Not so true anymore based on price, at least in my experience. AirBNN, Plus cleaning fees plus buyers fees is now disproportionally expensive compared to hotels for short breaks. I for one have gone back to booking.com now for most of my travel becuase I tend to get a better place and I prefer the hotel environment that low end airbnb. High End AirBnb is great but usually only works out cost effective for 4 or more travellers. I also airbnb myself and find it very good as a seller, but still their fees are unsustainable for long terms rents.
+4 Reply
Jacklee0814 Hmongpress
@Hmongpress, true
Reply
Personally I'm super bullish on ABNB vs other travel co's with tons of megatrends at its back. nice post tho
+7 Reply
@Pholesolus, I understand why many people are bullish. Me personally, I have a very strict criteria of choosing the stocks to invest in, and I tend to refrain from companies that are inconsistently profitable. Who knows? There's only one way to find out😆. Thanks for commenting! I really appreciate the support.
+3 Reply
Pholesolus Michael_Wang_Official
@Michael_Wang_Official, I'm much more of a speculator than an investor - totally get not wanting to be in this until it has proved itself. For me though narratives are driving stock prices at the moment compared to fundamentals - I'm likely going to be buying shares and selling puts in the meantime unless the IPO is a disaster
+6 Reply
scheplick Pholesolus
@Pholesolus, @Michael_Wang_Official I am very mixed on AirBNB. I suppose it's because they don't actually own anything. So the threats are other networks. But that's really hard to value but also great risk management for them. How do we know another network won't come take their biz like VRBO? But in other terms, they are lucky they have no capital intensive costs. So for me it is quite tricky. I guess as an investor you a buy a hope that they will remain the one true network and hold that position for 10+ years to eventually repay you for holding their stock. Obviously traders don't care, they will trade it as needed. But for investing it makes me think...
+4 Reply
@scheplick, Exactly, you raised a fair point. Which is why even as an investor, I'm looking to wait to see how the market reacts to the valuation, and supposedly add the stock to my portfolio based on how their Q4 results turn out. A proper covid vaccine development will be an important issue to look into as well. Thanks for commenting!
+1 Reply
Pholesolus Michael_Wang_Official
@Michael_Wang_Official, @scheplick I think long ABNB short MAR is the easiest secular travel trade of all time - people my age prefer the brand and experience, and capital light businesses have extremely high operating leverage. I'm trying not to overthink this and just get the timing right
+2 Reply
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