Airbnb had a very profitable IPO launch, but analysts are now speculating whether the stretch in share price was justified.
Last week, Airbnb (NASDAQ: ABNB) had a dramatic IPO event. The company raised its share price to $68 per share the day before its launch, but by the time it became available to retail investors it had hit $150, raising roughly $3.5 billion. The stock skyrocketed 120% and its market capitalization reached $103 billion on Thursday, which is more than five times its last private market valuation of $18 billion back in April. However, this week is not looking so good for the company, as the stock is currently down 15% and its market capitalization has fallen to around $80 billion.
Airbnb investors are becoming alarmed
Airbnb’s IPO surge stretched its share prices and has lifted the company’s valuation to around two-times its estimated bookings in 2022. At that rate, Airbnb’s valuation is more than three times higher than the average amongst rival digital travel agencies, like Expedia and Booking.com.
Apparently many investors are unable to justify the company’s valuation when compared to its competitors, resulting in reports showing that some shareholders who had previously planned to become long-term holders in Airbnb are now considering selling their shares.
Some analysts predict shares could fall. Many agree the company’s rapid growth deserves a premium, but consider its current 300%+ premium is over the top and predict the gap in valuation could close in the not so distant future.
Airbnb, like many software companies, was already struggling to reach profitability before the health crisis as it has only made a profit four times in the past ten quarters, including the third quarter of 2020. Other factors influencing travel, such as Brexit and speculations that the online rental company creates an artificial shortage of supply of housing for regular people, are also damaging the company. In Asia, Airbnb is struggling to resist pressure from Chinese authorities to share as much user information as possible.
Airbnb was not the only recently IPO’d company to experience huge drops in share prices this week.Since its market debut, DoorDash shares have also dropped almost 20% since Wednesday. Doordash stock priced last week at $102 but opened for trading at $182. At the time of writing, it has fallen to $158. Analysts predict that the surge in business Doordash experienced during the coronavirus emergency is highly unlikely to be sustained as restaurants reopen. Vaccine developments are also not good news for the food delivery company.
Both Airbnb and Doordash’s crazy IPO first-day pops have caused other companies to become hesitant over their launch day. Both Affirm and Roblox have postponed their planned IPOs until January, 2021.
Should I buy Airbnb Stock?
The company has lots of attractive qualities, including a long-term strategy that helped it weather the pandemic incredibly well, and a globally recognizable brand.
Airbnb was always going to be a dramatic IPO due to its wide following, which is why it is so hard to price right now. That is why we tend not to add recent IPOs to our shortlist here at MyWallSt, as we like to let the dust settle a bit so investors can wait to see how the company performs over a number of quarters.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.