Editors note: This article was updated on Dec. 10 to update information about Airbnb IPO pricing and date.
When Airbnb (NASDAQ:ABNB) stock IPOs on Dec. 10, investors should be ready to scoop up shares. Airbnb priced its stock at $68, above both the $56-$60 per share investment bankers had expected until recently and the originally proposed $47/share, but it’s still far too low. Analysts expect the firm to grow 35% per year, earn $6 billion in revenues by 2022, and essentially retain its near-monopoly in the home-sharing industry.
Source: Tero Vesalainen / Shutterstock.com
I’m not often excited about large money-losing tech IPOs. Like Rocket Mortgage (NYSE:RKT), many of them specifically choose their IPO dates immediately after they’ve had their best quarters. That allows corporate insiders to sell out at high prices before regular investors realize what’s going on. (For what it’s worth, RKT stock is down 35% from its September highs)
The Airbnb stock IPO, however, looks completely different. The company has seen one of its worst years on record from coronavirus travel restrictions. Revenues cratered 72% in Q2, and the company laid off 25% of its staff to help keep the lights on.
Yet, the company is going public anyway. That’s why investors will win.
As the world recovers from the unspeakable harms of the 2020 coronavirus pandemic, Airbnb stock will jump from its $68 IPO price. Not only will its business recover in 2021. A generational shift in attitudes is pushing Airbnb mainstream. Today, many people already find renting someone else’s house overnight as natural as calling an Uber. A decade from now, almost everyone will. While a $130 price target might take several years to achieve, here are five reasons you don’t want to miss out on the Airbnb stock IPO this week.
Airbnb Stock IPO: What Does Airbnb Do?
Before we turn to Airbnb stock, it’s worthwhile to look at what the company does.
In 2007, two college friends, Brian Chesky and Joe Gebbia, had an idea. To help pay their San Francisco rent, they inflated three airbeds in their apartment and turned their apartment into a bed and breakfast. It was only a half-baked business idea at the time. But it was enough to land the company a place in the prestigious Y Combinator, a startup incubator founded by computer programmer Paul Graham.
The startup began by offering cheap alternatives to hotel travel. The New York Times politely referred to Airbnb guests as “adventure-hungry travelers” looking for “memorable traveling experiences.” In other words, it was glorified couch-surfing.
But growth came swiftly. And after several rounds of fundraising, the firm’s big break came in 2015 with its massive $1.5 billion Series E funding. The enormous cash influx allowed the company to scale and fight for legal regulations that exist today.
With the home-sharing firm now starting to rival traditional hotel chains, it’s time to look at the five reasons why the Airbnb stock IPO seems so undervalued.
1: Investment Bankers Priced Airbnb IPO too Cheaply
In December, Airbnb revealed that Q3 revenue had recovered to 82% of the prior year. Its investment bankers, however, didn’t seem impressed. Bookrunners for Airbnb’s IPO initially priced the company between $44 to $50 per share, or a $33 billion-$35 billion market capitalization. (It’s since been increased to $68 per share, for a $47 billion market cap).
Contrast that sentiment to March 2017. Three years ago, Airbnb found itself worth $31 billion in its Series F funding. At the time, the firm earned $2.6 billion in revenues and had a two-year forward-price-to-sales ratio of 8.5x. (I typically use DCF models to evaluate companies, but high-growth/zero-profit startups need different metrics). By 2019, revenue had increased to $4.8 billion.
Then came the coronavirus pandemic.
In the nine months of 2020, Airbnb’s revenue dropped to a $3.4 billion run rate as stay-at-home orders decimated its business. And even though sales should increase to $6 billion by 2022, the company’s $35 billion price tag still represents a 30% discount to its 2017 valuation (when compared to sales).
Such “short-termism” has always plagued Wall Street. Analysts tend to look at only recent quarters rather than longer-term outcomes. While the method works for established companies, it often misses companies like Airbnb that have substantial long-term growth.
2. Airbnb’s Strong Network Effects
Airbnb stock has another ace-in-the-hole: its high barriers to entry. That’s because the company’s network runs on a positive-feedback loop. The more hosts join the site, the better the customer experience. And as more customers use Airbnb, the more hosts join, and so on. When you want to maximize your apartment’s rental days, you’ll list on the site that draws the most visitors.
Even well-funded competitors have struggled to compete against Airbnb’s massive network. The world’s No. 2 player Vrbo, owned by travel giant Expedia (NASDAQ:EXPE), remains less than a third of Airbnb’s size by listings.
Wall Street often overlooks network effects — Facebook’s (NASDAQ:FB) shares languished at $18 when the company first listed. But with time, these strong effects proved their weight in gold.
3. Asset-Light Growth
At $47 billion, Airbnb stock will be worth more than the top-two hotel chains: Marriot (NASDAQ:MAR) at $42 billion and Hilton (NYSE:HLT) at $29 billion.
But there’s a massive difference between Airbnb’s business model. Unlike the major hotel chains, Airbnb doesn’t own any of its properties listed (besides some minor forays into real estate investing). From a financial perspective, it’s a CFO’s dream-come-true. The company can snowball without having to sink money into expensive real estate.
Contrast that with cruise lines — an asset-heavy industry. Carnival Cruise Lines (NYSE:CCL) spent $5.4 billion to purchase property and equipment (PP&E). With that cash, the cruise line launched only four new ships in 2019 — the rest went into upkeeping its fleet. Even the traditional hotel chains have tried to shed assets for faster growth. Marriott now owns just 68 of its properties outright.
That makes Airbnb an unusual case in the world of hotel travel: each dollar invested can go to marketing or R&D instead of PP&E. That means its return on capital will look much more like software company Priceline’s (NASDAQ:BKNG) 156%, rather than Marriott’s 22%.
4. Insider Selling Will Create a Buying Opportunity
Airbnb’s IPO will have an unusual feature: fewer lockup restrictions. And that’s an excellent feature for investors.
It’s rare for tech IPOs to favor mom-and-pop investors. Usually, these firms enforce a six-month lockup period for rank-and-file employees. That reduces the number of available shares and drives up stock prices in the short-term. Companies like Snowflake (NYSE:SNOW) have benefited dramatically from these restrictions — its shares immediately doubled on its IPO day.
On the other hand, Airbnb will allow its employees to sell up to 15% of their shares when the company lists. The additional shares coming to market could help regular investors get in at a reasonable price.
But don’t wait long. The window will close fast as employees sell what shares they can.
5. Airbnb Is Becoming the ‘Uber’ of Hotels
Finally, investors need to step back and consider the long-term potential of Airbnb. To do that, let’s look at another industry: ride-sharing.
It’s easy to forget that app-based ride-shares were once considered somewhat unusual. After all, who would want to ride in a stranger’s car? Or worse yet, share it with another stranger?
Fast forward to 2020, and everything’s changed. Today, even corporations have embraced ride-sharing. Sixty-five thousand companies have already signed up for corporate programs, leaving traditional car rental companies like Hertz (OTCMKTS:HTZGQ) in the dust.
The hotel industry is seeing a similar shift. Airbnb today is no longer the couch-surfing startup of yesteryear. Today, you can rent high-end beach bungalows, ski cabins and luxury treehouses. Even businesses are starting to see Airbnb as an alternative to hotels. And that’s important. Even though business travel only makes up 20% of all travel, it’s a signal that Airbnb has become a socially acceptable way to travel.
Conclusion: What’s Airbnb Worth?
Sharpen your pencils — here’s where things get complicated. Airbnb expects massive growth through 2030, particularly as travel in emerging markets shifts to home-sharing. But how massive can the company get? It’s already “one of the largest providers of holiday accommodation in the world,” and growth obviously can’t go on forever.
Here’s the good news: even conservative estimates create a healthy picture.
Assume, for a moment, that Airbnb can increase revenues by 30% through 2028 and generate similar returns to Priceline. (Obviously, the OTA business has an entirely different fee structure, but the two software companies share enough similarities for an illustration.) With an average EBITDA of 33% and EV-to-EBITDA of 18x, Airbnb stock would be worth close to $172 billion by 2028. That means, with an 8.5% discount rate, the company is worth around $90 billion, or almost three times as much as its investment bankers have decided.
Of course, the truth is far more complicated. There’s little way to know where Airbnb’s EBITDA margins will land a decade from now, nor what exit multiple it will achieve. And even in the short-term, the company will see bumps along the way. In April, the company laid off 25% of its staff to keep the lights on amidst the pandemic, suggesting its business is more fragile than outsiders might believe. Also, its massive 75% gross margins are still eaten away by enormous overhead and marketing costs.
But look beyond the short-term, and a golden investment opportunity emerges. Airbnb could easily push $130 in the comping years as the company leapfrogs traditional hotel chains. The chance to invest in a fast-growing wide-moat industry for cheap doesn’t come around often. And when it does, make sure you’re ready to act.
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.
FAQs
What is the Airbnb forecast for 2023? ›
Strong numbers like these had investors enthused Wednesday. But so did the company's forecast for the first quarter of 2023. All in all, Airbnb expects to earn between $1.75 billion and $1.82 billion for the first quarter, which would be a healthy amount above last year's $1.5 billion.
Is Airbnb a good stock to buy? ›Airbnb shares are up well in excess of the Nasdaq in 2023 but still off their IPO price. The company posted its best year ever, with revenue, profit, and free cash flow soaring. Investors might consider buying the stock despite its elevated valuation.
Why is Airbnb stock so high? ›Key Points. Airbnb crushed on earnings earlier this week and guided for more sales growth in Q1. Investors cheered and drove the stock price higher. Now, three separate analysts are predicting Airbnb stock could keep on rising.
Is Airbnb stock undervalued? ›To start 2022, I'd argue that Airbnb was significantly undervalued based on its growth rate. Data source: YCharts. A ratio of 16 times free cash flow (FCF) is too cheap for a company that grew FCF by 21% in Q4.
What will Airbnb stock be worth in 2025? ›It then predicted a dip to $139.38 by May 2024, slipping further to $134.24 by May 2025, with a future price of $129.10 by May 2026. The 5 year Airbnb stock outlook put the stock at $122.95.
How high will Airbnb go? ›Average Price Target
Based on 31 Wall Street analysts offering 12 month price targets for Airbnb in the last 3 months. The average price target is $141.38 with a high forecast of $165.00 and a low forecast of $98.00. The average price target represents a 20.92% change from the last price of $116.92.
While there are many pros to investing in Airbnb properties, the cons need to be considered. The biggest downside to owning an Airbnb property is the amount of work that goes into acquiring the property, getting it rental ready, and finding a management team to free up your time.
What is Airbnb long term outlook? ›This situation bodes well for Airbnb's long-term relevance. Wall Street is certainly optimistic about Airbnb's prospects. Analysts expect the business to post year-over-year revenue and diluted EPS growth of 14.3% and 22%, respectively, in 2023.
Will Airbnb ever be profitable? ›Airbnb Attains Yearly Profitability for First Time in 2022, Breaking Records With Most Profitable Quarter Ever | Rental Scale-Up.
Why is Airbnb stock doing poorly? ›The risk factors behind Airbnb
Airbnb's stock fell nearly 50% last year despite its strong growth rate. While rising interest rates and the shift in market sentiment against growth stocks explain some of the sell-off, investors also seem to be taking a dim view of the company's prospects in 2023.
Who is Airbnb's biggest competition? ›
Airbnb competitors include websites like Vrbo, Booking.com, Tripadvisor, Agoda, Expedia, TUI Villas, TravelStaytion, HomeToGo, Plum Guide, and Google. Not all of them are vacation rental marketplaces.
Is Airbnb a buy sell or hold? ›ABNB Signals & Forecast
The Airbnb stock holds buy signals from both short and long-term moving averages giving a positive forecast for the stock, but the stock has a general sell signal from the relation between the two signals where the long-term average is above the short-term average.
According to the latest reports, the short-term rental industry will witness unprecedented growth in the coming years. This means that Airbnb rentals will also be profitable and prove to be a good investment for real estate investors.
Who owns the most Airbnb stock? ›Airbnb Stock Ownership FAQ
Who owns Airbnb? Airbnb (NASDAQ: ABNB) is owned by 40.81% institutional shareholders, 3.41% Airbnb insiders, and 55.78% retail investors. Brian Chesky is the largest individual Airbnb shareholder, owning 13.66M shares representing 2.13% of the company.
Even before coronavirus, Airbnb was struggling to turn scale into profits. The company lost $674 million last year as costs soared to $5.3bn. Behind these numbers are Airbnb's hosts, who range from retiree holiday home owners to investors with vast but flimsy rental empires.
Is Airbnb going to grow? ›Airbnb's revenue rose 40% to $8.4 billion in 2022, compared to its 77% growth in 2021 and 30% pandemic-induced decline in 2020. Its post-pandemic growth in 2021 set it up for tough year-over-year comparisons throughout 2022.
How much should I invest in Airbnb? ›The average cost to start an Airbnb sits between $3,000-$6,000. This cost will significantly vary depending on the following items: Property purchase price. Home Loan Down Payment.
Is Airbnb booming? ›The home-sharing platform posted revenue of $1.5 billion, up 70% compared to the year prior and exceeding the $1.45 billion expected by analysts surveyed by Refinitiv. The revenue also marks an 80% increase from the same quarter in 2019, the last quarter before its business was hit by the pandemic.
How long until Airbnb is live? ›Recently activated listings may not show up immediately in search results - it may take 24 hours for the listing to become visible. To help Hosts get started, the algorithm is designed to make sure new listings show up well in search results.
Is Airbnb getting over saturated? ›Many people saw short-term rentals as a way to make money during the pandemic. Now an oversaturation of hosts has led to more Airbnbs, leading to booking slowdowns in some areas.
Could Airbnb be a trillion dollar company? ›
In the end, Airbnb holds considerable potential to become a $1 trillion stock by 2035. In 2022, revenue grew at approximately twice the rate of costs and expenses.
Why is Airbnb losing popularity? ›Because of the high surcharge on Airbnb rentals, many people have returned to staying in hotels. As many Twitter users pointed out, hotel amenities – such as a concierge, cleaning services, pools, and better security – might be worth more than an Airbnb stay.
What is the bad side of Airbnb? ›People who list on Airbnb also don't have to pay for the same insurances that hotels do, therefore if anything were to happen Airbnb may not cover guests at all. This also includes theft of cash/valuables from the property, whether it was from the host, other guests or as a result of a break-in.
How will Airbnb do during recession? ›Some sector experts agree that, though Airbnb wouldn't be totally recession-proof, the company might hold up relatively well during a downturn.
What is the future of Airbnb 2030? ›Tech News Leader gives an even more bullish forecast for Airbnb, according to which Airbnb can hit $1000 in 2028 and have a minimum price of $952 in that year. In 2030, the Airbnb stock's value can even increase as high as $2398 with a minimum price of $2094.
Why is Airbnb struggling? ›Instead, market analysts say many U.S. Airbnbs are sitting empty because so many wealthier people and investors listed short-term rentals on the site, in the wake of a pandemic-fueled boom. The number of available short-term rental listings in the U.S. skyrocketed to 1.38 million in September.
Is Airbnb losing business? ›The pandemic-related travel boom of 2021 and 2022 has helped Airbnb (ABNB) have one of its best years ever. Yet despite its strong business performance as of late, the vacation rental company's stock is down 30% year to date. The ongoing bear market downturn is largely to blame for Airbnb's big fall.
Is Airbnb losing hosts? ›Overall, Airbnb saw its host ranks fall around 7 percent in the 12 months ending March 31, 2021 — but this excludes the 2 percent of single-property hosts and 1.8 percent of the rest who have decided not to accept bookings over the next three months.
Who is Airbnb competitor IPO? ›Airbnb listed Expedia as a competitor in its IPO filing. Expedia owns vrbo, a short-term rental platform that competes directly with Airbnb.
Who competes against Airbnb? ›- Vrbo. Part of the HomeAway group, Vrbo (originally known as “Vacation Rentals”) is the world's second-largest short-term rental company, next to Airbnb. ...
- Wimdu. ...
- Booking.com. ...
- Expedia. ...
- TripAdvisor. ...
- Agoda. ...
- Trip.com. ...
- GlampingHub.
Which is bigger Airbnb or VRBO? ›
Airbnb has more listings.
When it comes to variety, Airbnb comes out on top. Currently holding 5.6 million worldwide listings, Airbnb provides more opportunities to find a unique reservation versus the 2 million listings on Vrbo.
| Airbnb Inc Ordinary Shares - Class A XNAS: ABNB | Expedia Group Inc XNAS: EXPE | |
|---|---|---|
| Price | 114.65 | 92.03 |
| Currency | USD | USD |
| Change | +$0.70 (0.61%) | +$1.07 (1.18%) |
| Market Cap | 72.38 Bil | 14.11 Bil |
Before the pandemic, Airbnb was at its peak with billions in cash on hand and plans to go public via a non-traditional direct listing because it didn't need to raise any new money, it just wanted to let employees and investors cash out.
What is the true value of Airbnb stock? ›As of today (2023-05-02), Airbnb's Intrinsic Value: Projected FCF is $0.00. The stock price of Airbnb is $120.58. Therefore, Airbnb's Price-to-Intrinsic-Value-Projected-FCF of today is 0.0.
Is Airbnb good long-term? ›Airbnb is a valuable resource for many types of travelers, but it can be especially valuable for those looking for long-term stays. Booking a monthly rental on Airbnb can save significant amounts of money over shorter-term bookings, but it may still cost more than using a local resource.
Is Airbnb a smart investment? ›It May Be More Lucrative Than Traditional Renting
A solidly booked Airbnb rental may be more profitable than renting the same property to a long-term single tenant. That's because you're usually able to charge more on a nightly basis.
The best recession stocks include consumer staples, utilities and healthcare companies, all of which produce goods and services that consumers can't do without, no matter how bad the economy gets.
Did Jeff Bezos invest in Airbnb? ›Jeff Bezos Backed Airbnb Before Its IPO, He Also Invested In This Company. Back in 2011, Amazon.com, Inc (NASDAQ: AMZN) founder Jeff Bezos invested in Airbnb Inc's (NASDAQ: ABNB) Series B through his personal venture-capital firm, Bezos Expeditions.
Who got rich from Airbnb? ›Higher-than-expected quarterly revenue figures reported by Airbnb led to its biggest one-day stock pop since its IPO in December 2020, boosting the fortune of cofounder and CEO Brian Chesky by more than 20%.
Who is Airbnb merging with? ›Here's why Airbnb's 2019 acquisition of HotelTonight could be key to its post-pandemic playbook.
Will Airbnb be profitable in 2023? ›
According to the latest reports, the short-term rental industry will witness unprecedented growth in the coming years. This means that Airbnb rentals will also be profitable and prove to be a good investment for real estate investors.
What is the future price prediction for Airbnb? ›Airbnb Inc (NASDAQ:ABNB)
The 29 analysts offering 12-month price forecasts for Airbnb Inc have a median target of 140.00, with a high estimate of 165.00 and a low estimate of 98.00. The median estimate represents a +17.31% increase from the last price of 119.35.
Airbnb is for finding a place where to live
Since the pandemic, Airbnb has launched projects such as “Live and Work Anywhere on Airbnb“ and promoting mid-term and long-term stays. However, the most significant development is the launch of an Airbnb-friendly apartment marketplace in late 2022.
So, is booking an Airbnb last minute cheaper? We recommend a middle path: Booking neither many months in advance nor a few days before check-in, but somewhere in between. This offers the lowest typical rates, according to our data. Keep in mind that this rule of thumb won't apply in every situation.
Is Airbnb expected to grow? ›Airbnb could grow at a faster pace than expected
Customers booked roughly 394 million nights and experiences on Airbnb last year, a 31% increase over 2021. Meanwhile, the company witnessed faster growth of 35% in gross bookings value to $63.2 billion in 2022, driven by an increase in the average daily rate.
Instead, market analysts say many U.S. Airbnbs are sitting empty because so many wealthier people and investors listed short-term rentals on the site, in the wake of a pandemic-fueled boom. The number of available short-term rental listings in the U.S. skyrocketed to 1.38 million in September.
How high can BNB go 2030? ›BNB price prediction March 2030: BNB's price for March 2030 according to our analysis should range between $1515.37 to $1743.49 and the average price of BNB should be around $1629.43.
What is the price target for BNB in 2030? ›| Year | Minimum Price | Average Price |
|---|---|---|
| 2028 | $2,008.55 | $2,105.74 |
| 2029 | $2,332.51 | $2,429.70 |
| 2030 | $2,656.47 | $2,753.66 |
| 2031 | $2,980.44 | $3,077.62 |
The Airbnb stock price prediction will finally hit $200 and be traded above during the second half of 2024, based on Panda Forecast. According to Panda Forecast, the highest average price for Airbnb will be in November, when it will be traded at $244 with a maximum price of $252 and a minimum price of $235.
Is Airbnb fading away? ›The business model has already survived through multiple economic cycles — Wired even asked back in 2020 “is this the end of Airbnb?” — and so far the numbers suggest it's only continuing to grow. “Short term rentals,” Rex concluded, “are not going to go away.”
Is Airbnb growth slowing? ›
For the first quarter of 2023, Airbnb expects to generate revenue of $1.75 billion to $1.82 billion, or a gain of 16% to 21% year over year. That's slower than its 40% growth in 2022.
Why would Airbnb cancel? ›These situations include: Valid reasons beyond the Host's control, such as emergency repairs (like a gas leak or a burst pipe) or serious personal illness that prevents hosting. Proof that a guest intends to break house rules, have an unauthorized party, or otherwise violate our Party and Events Policy.