Airbnb IPO: a stunning debut on the stock market

The Airbnb IPO has taken place, raising $3.4bn at a price of $68 per share. Given the coronavirus pandemic, it’s an interesting time for a travel company to go public

After months of delays linked to the coronavirus pandemic, the Airbnb IPO has finally happened. So when will Airbnb stock be available – and have there been any early Airbnb stock price predictions?

Well, one thing that we do know is that the Airbnb IPO price comfortably exceeded the target range that had been set before its Wall Street debut on December 10. Airbnb shares were priced at $68 apiece – comfortably beyond the $56 to $60 that had been expected.

Early indications even suggested that Airbnb stock could open at $150 a share – with CEO Brian Chesky telling Bloomberg that he was “humbled.” Such an Airbnb share price would put the company’s valuation at closer to $100bn, substantially more than Booking Holdings (owner of Booking.com) is worth.

There was a nice touch when trading began on Wall Street, linked to the age-old ritual of executives ringing the opening bell. In a video on YouTube, Airbnb said it had asked its hosts to do the honours – with accommodation providers in Iceland, Morocco, South Africa, India, Thailand among those who rang their doorbell to mark the Airbnb IPO.

This Airbnb stock price means that a total of $3.5bn has been raised from the Airbnb IPO, taking the company to a dizzying value of about $47.3bn. All of this means that Airbnb stock is worth substantially more than the likes of Experian and Marriott International – companies that have long been a dominant force in the travel sector.

But given that the hype around IPOs can quickly subside, and share prices can subsequently fall through the floor, how much will Airbnb stock be worth further down the line? Ahead of the Airbnb IPO, executives did acknowledge that there were some challenges that the business will have to face in the months and years ahead – and not all of them are linked to the coronavirus pandemic.

Is Airbnb stock a good investment?

Taking a look at the prospectus filed with the US Securities and Exchange Commission can help give us a clear idea about whether Airbnb shares are overvalued.

The document features the one line that every investor dreads to read – and one will certainly weigh heavily on the Airbnb stock forecast:

“We have incurred net losses in each year since inception, and we may not be able to achieve profitability.”

A net loss of $70m in 2017 was followed by losses of $16.9m in 2018 – but this widened further to $674.3m in 2019. In the first nine months of 2020, losses stood at $696.9m, but it is worth noting that the Airbnb IPO is taking place in a year when a global pandemic has brought international travel to a screeching halt. Lockdowns around the world meant many people were prohibited from booking holiday rentals.

The SEC filing also warns that “our substantial level of indebtedness could materially adversely affect our financial condition”. Up to September 30, this figure was just shy of $2bn.

Financials aside, there are other headwinds that could affect Airbnb shares going forward – threats that are also duly noted in the prospectus. The industry is a competitive one, and the success of Airbnb stock will hinge upon the company’s ability to entice hosts, as well as paying guests. According to the company, its revenue growth has slowed in recent years, and this trajectory is expected to continue in the future.

But a bigger threat to the Airbnb stock forecast lies in how cities around the world have been taking action against the company – in some cases banning rentals in fear that they were hurting hoteliers and pushing up rents for local residents.

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And, last but not least, the Airbnb IPO has taken place in the wake of controversies that have thrust the company firmly into the spotlight. Last October, Vice uncovered an Airbnb scam that was taking place across the US – with phony listings and fake reviews leaving some holidaymakers out of pocket. Meanwhile, under-25s in parts of Europe have been banned from booking homes amid fears that they could throw house parties.

Backers of the Airbnb IPO aren’t necessarily concerned about these scandals. Instead, they see a platform that has enabled people with spare rooms to unlock much-needed income – an outlet where tourists can fully immerse themselves in the culture of the towns and cities they visit. In the short term, at least, Airbnb shares could also get a boost owing to a renewed focus on domestic travel, with many people opting for staycations instead of boarding planes.

Can Airbnb be profitable?

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Despite the caution shown by executives in the SEC filing, analysts believe that the Airbnb share price could grow in time – especially if it manages to trim costs and focus on securing new listings. The more properties there are on offer, the more compelling it will become for those who are planning a getaway.

David Trainer of New Constructs wrote in a recent research note:

"Unlike other recent IPOs, and several stocks where valuations are sky-high, Airbnb has a plausible path to profitability.”

Airbnb stock could also experience an upside from their current levels as the world gradually comes out of lockdown and vaccinations begin to commence on a greater scale. Airline shares have been hit hard by the pandemic, but operators have reported pent-up demand from customers in recent weeks. And when people start travelling, they need somewhere to sleep.

Another factor that could work in favour of Airbnb shares lies in how many people have now embraced remote working, with their employers giving them the freedom to work from anywhere. This trend could remain long after the COVID-19 pandemic is over.

Discussing the Airbnb IPO on CNBC, Brian Chesky said the company was determined to tailor its offering in light of the current challenges facing the travel sector:

“People are saying, ‘I want to go anywhere 300 miles around me, what can you show me? Now we’re going to be getting a little bit more into the game of inspiration and matching people to the perfect home experience for them.”

Overall though, it’s been a long journey to reach the Airbnb IPO. This was a company that was founded by three men all the way back in 2008, who had the idea of renting out their spare room in order to generate a little extra cash.

FURTHER READING: How to find good stocks

FURTHER READING: Next stock market crash predictions: is a mass sell-off looming?

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