Airbnb (NASDAQ 🙂 went public last week and its debut turned out to be a resounding success. Shares of the San Francisco-based vacation rental platform opened for $ 146, skyrocketing from the IPO price of $ 68, earning the company a valuation of $ 100 billion.
Clearly, this is no ordinary achievement in the midst of a devastating pandemic that has decimated the global travel industry and pushed many international companies to the brink of bankruptcy.
Following its dazzling debut, Airbnb is now worth more than five times the implied post-money valuation of its debt, which was raised in April, according to PitchBook. In addition, its market capitalization is now more than the combined market values ??of several of its largest hotel competitors.
This robust demand for Airbnb shares clearly shows that investors have great confidence in the company's business model, which they believe can withstand some of the harshest working environments in existence for hospitality and hospitality. travel organizations.
The global pandemic was a challenge for Airbnb, which saw demand for short-term rentals dry up in the busiest and most expensive business centers. Revenue fell 18% in the third quarter compared to 2019. That was much less than Marriott International (NASDAQ :), which saw a 57% decline in revenue, and Expedia Group (NASDAQ 🙂 online travel agency, of which 58%. fell.
Nevertheless, it was still able to outperform airlines, hotel brands and cruise lines by running on a redefined strategy.
Flexible Business Model
After holding out when liquidity dried up last spring, Chief Executive Brian Chesky quickly shifted his strategy to focus on local residences when travelers started avoiding flights during the first wave of the pandemic.
Airbnb's relative resilience in a historically bad year for the travel industry is the result of a flexible business model that allowed the company to meet customers wherever they wanted to go. That meant city dwellers fled to less crowded locations or families and groups looking for a vacation close to home.
While these strengths are strongly reflected in the success of the Airbnb IPO, the question for private investors is whether this is the case. the right time to buy this stock? According to some Wall Street analysts, Airbnb's journey from here is largely a function of the post-pandemic recovery in the travel industry and how well the company is positioned to capitalize on it.
"They're going to figure out how to make it safe, how to make it easy, and how to make it affordable for anyone looking for alternative solutions," Michael Seibel, partner at Y Combinator, said CNBC last week.
“And then I think the second thing that is most interesting is that the future of work, since we all work from home, Airbnb is in the best position to support employees who are now basically able to dividing line between one- to two weeks of vacation rentals and one year of apartment rentals. So I think there are still many great opportunities ahead. "
Another differentiator for a disruptor like Airbnb is that it is very popular with Millennials, who are now the largest consumer group, and Generation Z (anyone born between 1995 and 2015), which is the future. As Bloomberg analysis put it:
“The company is a brand that the new generation of millennials has grown up with. Such brand awareness can help strengthen the company as the place to be for short-term rentals. It also means that Airbnb has to spend a lot less money on advertising, which improves profitability. "
Despite these bright prospects, there are no business without risks. In the case of Airbnb, cities are enacting stricter rules after a backlash from long-term residents against the platform. And what travel will be like after the pandemic is still only speculation.
It may take years for normal travel demand to return after the pandemic. So, despite the flexible nature of Airbnb's business model, it could continue to live with fewer business travelers' trips as video conferencing becomes the norm.
Bottom Line
We believe Airbnb is a great travel stock to own and should complement an existing balanced portfolio. That said, it is not advisable to buy a stock right after it experiences IPO euphoria. The smarter strategy is to wait and look for a better entry point.
