Is Airbnb a stock you should invest in?

All the information I express regarding the Airbnb stocks is what I was able to gather from Airbnb’s submission to the SEC. The truth is I was waiting for this IPO for a long time, and it is surely the most important IPO of 2020. The IPO is going to take place in December without a clear date being published and will be listed as (NASDAQ: ABNB). I will be covering the following matters:

  • Company’s Overview
  • The impact of the coronavirus – Financials
  • Competitors – What distinguishes Airbnb from them
  • Risk factors to consider
  • Safeguards to consider

Company’s overview

Airbnb is a vacation rental online business, that allows people worldwide to find places to stay either for traveling purposes or business purposes. It is used for short-term stays meaning temporary accommodation. It was founded in 2008 and has its headquarters in San Francisco, California, United States. It has more than 7 million homes listed, and it operates in 100,000 cities.

Does Airbnb own the properties listed? No, it doesn’t own any of them, in fact, people like you and me that have a residential home can list it on Airbnb after successfully complying with its rules. This helps the homeowners to achieve higher occupancy rates since it gives them “automatic advertising” when they appear on the searches without them having to spend money on advertising. Of course, Airbnb doesn’t do that for free! It charges them 14 – 16% whereas in some other cases 20% to those who offer experiences and this fee is deducted from the host’s payout. This fee can vary from country to country.

Impressive how such a “simple” idea – two friends renting their house to help them pay their rent, twelve years later turned into a business worth $18 billion. Before the coronavirus pandemic, Airbnb was worth $38 billion.

Coronavirus pandemic impact on Airbnb stocks – Financials

I believe that from now on the Covid-19 impact on any business is very important to be mentioned for a thorough comparison of what it used to be and what may be again. According to Airbnb’s reports, in 2019 there was an increase of 32% $4.8 billion in its revenue and a 29% increase in the bookings to $29.4 billion. However, 2020 didn’t seem to be a good year considering the virus, revenues faced a decline of 32% to $2.5 billion and its bookings fell by 39% to $18 billion.

Needless to say, the net losses from 2018 to 2019 have seen a huge rise from $17 million in 2018 to $674 million by the end of 2019. Pandemic widened these losses even more for 2020 accumulating at $697 million losses until September 2020. The total deficit was $2.1 billion as of September 30, 2020.

These numbers are surely causing you to reconsider your investment in Airbnb so to spread your hopes up again Reuters estimates a valuation raise to $30 billion. Not to forget that Airbnb was valued $31 million in 2017 which is nothing to what it is valued now after the pandemic. In general, This IPO hopes to reverse this decline.

Competitors

  • Since Airbnb falls under the booking market, I need to highlight the many rivals it has since this is a small barrier business to enter.
    Unlike Airbnb, Expedia Group (EXPE) and Booking Holdings (BKNG) have both reported a steady earning report that shows operating profits increasing year by year.
  • HomeAway (AWAY) does not charge a fee for each booking as Airbnb does, and it’s only asking for an annual $350 to advertise the property. Meaning leaving the hosts with much more profits than Airbnb.
  • Trip Advisor (TRIP) which is a rival, reported a much smaller revenue compared to Airbnb accumulating $156 million in 2019.
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airbnb stocks q4

What distinguishes Airbnb stocks from its competitors?

The company’s advantage over its competitors is surely visible for the following reasons:

  1. Airbnb is 3 times bigger than Trip Advisor

    Trip Advisor might be a competitor, but Airbnb has an advantage over it if you compare sizes which means Airbnb does not have to worry, at least for the near future.

  2. It has a rapid growth

    Comparing the percentage changes in the above chart, Airbnb has proved to be growing almost 10 times faster than Booking Holdings and 5 times fast than Expedia Group.

  3. Airbnb is very liquid

    According to Bloomberg it holds $2 billion cash in the bank which means it can help it overcome the losses and the negative events that bother their way.

top five booking companies

Data provided by Statistica

Risk factors to consider:

Before the vaccine, I would have definitely said the third wave of Coronavirus, but after the vaccine news I am personally very positive that all this will be history soon, but this is a different article.

  • The regulations for short-term rentals are becoming stricter. Airbnb grew because of the non-existing regulations of short-term rentals, but after this rapidly growing business things became more apparent. There have been some incidences from hosts discriminating guests, blaming guests for damages, misleading them from the pictures, even some parties going on causing police engagement. But like Uber, Airbnb it’s just a technology platform connecting hosts with guests. Bottom line, it can be very difficult to come up with regulations in all cities and regions which give Airbnb space to breathe.
  • The competition becomes bigger. Other online booking services like, Booking Holdings (BNKG) that provides the same service. In addition, Expedia (EXPE) bought Home Away (AWAY) a few years ago and raised competition. Likewise, a French hospitality Accor bought short-term rental One Fine Stay and Marriot International (MAR) partnered with home rental platform Hostmaker to provide short-term rentals. As it seems Airbnb changed the game for hotels and pushed them to pursue other strategies which point to how strong a player is.
  • Airbnb does not have a clear path to profitability. In fact, Airbnb has not generated profit, and this is something big to consider. All this together seems to shadow Airbnb’s future. But, with the IPO going on, and the available cash in the bank there is definitely light at the end of the tunnel.
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Safeguards to consider:

  • The hotel sector has proved to be far more “destroyed” from Covid-19 than Airbnb which keeps it in a strong IPO position. Did you know that as of December 31, 2019, 72% of 327 million Airbnb nights were booked by individual hosts? In other words, 92 million nights were listed under professional hosts by Airbnb. Moreover, Marriot International had 1.38 million rooms meaning almost 67 nights of full occupancy. Would these guests stayed there and keep Marriott’s properties full if it wasn’t for Airbnb? I don’t think so.
  • Recently, Bill Gates expressed his opinion on how business travel will drop 50%. This can be very bad for hotels, but what about Airbnb? Because of the way everyone travels today, using online bookings and seeking to pay less for the maximum luxury, it makes it harder for hotels to beat the industry and especially Airbnb.

Conclusion

Investors need to consider all possible factors to form their decision. There is not a final price for the stock going IPO, but be sure we will notify you in our WhatsApp group once we have the final date. At the end of the day is all a belief and since people will “value” it on the market I believe they will give it quite a high value at least in the long term. It is on my personal portfolio list since the world is on track for a coronavirus free world.

I/we have no position in any stock mentioned. I wrote this article myself, and it expresses my personal opinions. I am not receiving any compensation for it, other than FDGT Academy. I do not have or had in the past any business relationship with any company that is mentioned in the above article.    

Natalya C. - Junior Analyst at FDGT Academy

Natalya C. - Junior Analyst at FDGT Academy

I am a stock analyst/investor with prior experience and knowledge to BSc Accounting and Finance. After completing my degree and exposure to the accounting firms I decided that the direction I should choose is towards the Investment world. I completed my masters in Investment Management where it gave me solid fundamentals to build my career on. I have examined a lot of different aspects of investment, from REITS, derivatives, currencies, bonds, equity and hedge funds. I never stopped learning about the market which is why I can analyze and write articles for FDGT community always personally opinionated. My passion are green energy and electric vehicles stocks as a whole. I also had my share of analyzing the work form home stocks that are coming to take over in the upcoming years.