Investors this week will have the opportunity to own the shares of one of the most successful disruptors of our time. The home rental platform Airbnb (NASDAQ 🙂 is seeking to raise a whopping $ 2.6 billion through stock sales amid the pandemic that has shaken the travel industry and tested the strength of the company's business model. The San Francisco-based company will go public on Thursday, December 10.
Despite the challenges that COVID-19 poses, there are strong reasons to believe that Airbnb's IPO will be a huge success. The Wall Street Journal reported Monday morning that Airbnb plans to increase the proposed price range of its initial public offering to between $ 56 and $ 60 per share, from $ 44 to $ 50. The new series would value the company around $ 42 billion. deliver on a fully diluted basis, including the proceeds of the offering.
Investors will acquire a stake in the online home rental operator when the coronavirus pandemic has taken a massive toll on the travel and hospitality industry. Airbnb's gross booking value (GBV) for the nine months ended September 30 plummeted to $ 18 billion, nearly 40% less than the same period last year, according to the documents.
But that number does not reflect how quickly the company is back on its feet by taking advantage of people's changing travel preferences. After holding out when liquidity dried up last spring, Chief Executive Brian Chesky quickly shifted his strategy to focus on local lodging, as travelers did not want to take flights during the first wave of the pandemic.
Airbnb Monthly Booking Trends 2020
Courtesy of Airbnb
The low point reached a low point in April, with a decrease of 72% from the previous year. This was when Airbnb cut its marketing spend and cut the number of full-time employees by about 25%. In June, the company redesigned its website and app so the algorithm would show potential travelers everything from cabins to lavish beach huts near where they lived, he told the WSJ in an interview. In response, bookings in June were down just 21% from a year earlier. the most profitable period ever based on earnings before interest, taxes, depreciation and amortization. It reported $ 501 million in revenue on an adjusted EBITDA basis, a big change from the $ 400 million loss in the second quarter. Pre-pandemic, domestic travel made up only 52% of Airbnb's business. It is now almost 80%.
As this remarkable turnaround continues, an important question for long-term investors is how long it can take and whether they will buy Airbnb stock at too high a price once it starts trading this week?
In the short term it will be a tough ride as COVID-19 cases increase worldwide, resulting in more lockdowns.
"We are seeing a decrease in bookings in the most affected regions," the company said in its IPO filing.
“As a result, we expect a greater year-over-year decline in the number of nights and experiences booked and gross bookings in the fourth quarter of 2020 than in the third quarter of 2020, and a greater year-over-year increase in cancellations and changes in fourth quarter of 2020 than in the third quarter of 2020. ”
But despite these challenges, there is good reason to believe that the travel industry will rebound strongly in the first half of next year as vaccines arrive, helping to reopen the economy and unlock pent-up travel demand.
Bottom Line
Airbnb is a solid travel stock for any long-term portfolio because the company has a great management team and a very resilient business model. The company's resurgence at this most difficult time proves that Airbnb is here to stay. Investors should look for a better entry point and buy this stock to hold long term after this week's IPO.
