After going public in one of the hottest IPO’s in 2020, and amid a pandemic that upended global travel, is Airbnb a good investment?
Airbnb (NASDAQ: ABNB) is an online accommodations marketplace founded in San Francisco, California, in 2008 and went public in December 2020. The company started when two founders hosted its first guests with an airbed and breakfast and have since gone global with over 800 million guests. But with the decline of worldwide travel in 2020 due to COVID-19, is Airbnb a good buy?
The bull case for Airbnb:
Airbnb has a large customer base with over 4 million hosts in over 190 countries. It is a truly global brand that has disrupted the hospitality sector with its asset-light marketplace. Airbnb is used as a noun and a verb in many countries worldwide and is a testament to the strength of its brand and according to its S-1, “Airbnb” was searched worldwide more often than any other major travel brand. It also has high customer satisfaction levels, with 82% of guest reviews during the twelve months ended September 30, 2020, having a 5-star overall rating.
It estimates its total addressable market to be $3.4 trillion, which includes $1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for experiences. This is a vast opportunity and leaves a significant runway for growth.
Airbnb is led by founder and CEO Brian Chesky, with fellow founders Joe Gebbia and Nathan Blecharczyk working as the chairman and chief strategy officer respectively. Airbnb also has high insider ownership and has made all its employees shareholders, which is a positive sign for investors.
Airbnb proved to be highly adaptable and resilient throughout the crisis despite gross booking volume declining by almost 80% with the onset of COVID-19. The number of hosts in different locations remained relatively stable and domestic travel rebounded. Airbnb recovered faster than initially anticipated and Chesky stated, “that crisis made us a much better company”.
Management originally forecast that revenue in 2020 could be less than half that of 2019, but remained resilient with a 30% decrease year-over-year (YoY), to $3.4 billion. It reduced its expenses by cutting its workforce by 25% and reducing discretionary spending. It also increased its cash position by $2 billion to weather the crisis. Another major cost-cutting measure was cutting its advertising spend. Despite this, traffic levels to the site in Q4 2020 were over 90% unpaid, demonstrating the brand awareness compared to rivals such as Expedia and Booking.
Airbnb remains focused on the Airbnb experiences which launched in 2016 and were temporarily stalled in 2020. Experiences are a key focus as people statistically like it more than homes, and coupled with the large market opportunity Chesky is “bullish” on experiences going forward.
With the vaccine rollout accelerating globally, Airbnb also expects a further rebound, with over half of Americans surveyed have either booked or plan to travel in 2021. Airbnb continues to expand into markets that have lower penetration levels, such as India and China, and these regions provide a vast opportunity for growth in the coming years.
The bear case for Airbnb:
Airbnb is unprofitable and in 2020 reported a net loss of $4.6 billion, including $2.8 billion of stock-based compensation. It is yet to record an annual profit since it was founded and revenue growth has slowed and did not provide guidance for 2021. If travel remains low in the coming years, this would harm the business.
The most considerable risk a regulatory one. Its global footprint means that depending on the laws and regulations, hosts may be less willing to host and use the platform. However, no city accounted for more than 1.1% of revenue in 2020 down from 2.5% the year prior which decreases the regulatory risk.
Airbnb more than doubled on its first day as a public company and its market cap is double the size of Marriot the largest hotel company in the world. It is trading at a rich valuation of roughly 32x sales which is by no means cheap and investors are paying a premium for the business.
So, should I buy Airbnb stock?:
Airbnb is a global brand that has proved resilient despite global travel being disrupted. It is emerging from this pandemic in better shape and is well-positioned to grow and if you believe in the company it may be a good investment today.
When did Airbnb go public
Airbnb went public on the Nasdaq on December 10, 2020
Does Airbnb pay dividends?
No, nor does it plan to in the foreseeable future.
Where is the name Airbnb derived from?
The name is derived from Air Bed and Breakfast, which was shortened to Airbnb.
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