Airbnb could be one of the hottest initial public offerings of the year.
The company has become synonymous with the home-sharing and rental concept that it pioneered more than a decade ago. And despite competition from online travel operators
(ticker: BKNG) and
(EXPE), which runs the Vrbo site, it remains the industry leader.
of travel,” says James Cordwell, an Atlantic Equities analyst. “Like Apple, Airbnb’s brand-building approach and design of its app have helped foster a sense of community and connection among users.”
During the pandemic, risk-averse travelers have favored private homes over hotels, and that has enabled Airbnb, which will trade under the ticker ABNB, to rebound more quickly than traditional lodging companies. Airbnb reported an after-tax profit of $219 million in the third quarter, compared with a loss of $576 million in the second quarter.
With its asset-light business model and global presence, the company is poised to benefit from a rebound in travel. While the current quarter is expected to be weak amid a worldwide resurgence of Covid-19, investors are looking toward 2021 and 2022, when the world should normalize with widespread vaccinations.
The proposed market value of Airbnb—around $30 billion at the top of the proposed pricing range of $44 to $50 a share—isn’t cheap based on traditional financial measures like earnings and sales.
But its valuation looks reasonable given the company’s market position, scarcity value, brand power, and global opportunity at a time when investors regularly value exciting growth companies at considerably more than 10 times annual sales.
Its IPO, which is due to price on Wednesday, looks digestible at under $3 billion at the top of the pricing range and assuming an offering of roughly 57 million shares. That’s less than 10% of the 601 million shares outstanding. (Another 40 million shares are linked to deep-in-the-money options and soon-to-vest restricted stock.) All this should prompt strong demand, and Airbnb’s share price could end the week appreciably above $50.
Cordwell has already begun coverage, with an Overweight rating and a price target of $75 a share. He projects about $1 billion of earnings before interest, taxes, depreciation, and amortization, or Ebitda, for 2023, when he sees earnings of 40 cents a share. The IPO should benefit from what Cordwell calls a “scarcity of secular growth stories in online travel.”
*High end of estimated pricing range. E=Estimate; N/A=Not applicable.
Sources: Bloomberg; company reports; Atlantic Equities
Airbnb has 5.6 million listings in 100,000 cities in 220 countries and regions, with more than half of its revenue from outside the U.S. Those listings include 3,500 castles, 2,600 tree houses, and 140 igloos, as well as rooms and houses. In 2017, Airbnb paid $200 million for Luxury Retreats, now Airbnb Luxe, which has rentals for as much as a few thousand dollars a night.
The company skews younger than sites geared toward vacation rentals. Millennials account for the bulk of its business, and its average daily rate is around $130 a night.
Scott Galloway, a New York University marketing professor and tech entrepreneur, has said that Airbnb would be worth over $100 billion by the end of 2022, which would translate into a price of over $150 a share. “If Airbnb trades like a story stock, and it will, we could see Tesla-like multiples of 15 times revenues,” he said on his Prof G podcast last month.
At the top of the pricing range of $50 a share, Airbnb would be valued at around seven times estimated 2021 sales of $4.3 billion. Revenue is expected to total $3.3 billion this year, down 31% from 2019, but rise 30% in 2021 and another 40% to $6 billion in 2022, Cordwell estimates.
The Airbnb valuation is above that of lodging leaders
Hilton Worldwide Holdings
(HLT), which are valued at three to four times estimated 2021 sales, but below that of Booking, whose strength is European hotel bookings and is valued at around eight times estimated 2021 sales.
One knock against Airbnb has been that its free-spending ways resulted in a sizable loss last year despite strong revenue growth. Sales rose 33%, to $4.8 billion, in 2019, but the company lost $674 million as it spent heavily on sales and marketing and building its Chinese business.
When the pandemic hit, the company had to borrow $2 billion at a steep average rate of nearly 10% and give its lenders valuable equity warrants now worth $200 million. Yet this has chastened Airbnb, which is now more focused on profitability.
Another worry has been the company’s relationships with local governments that may have concerns about taxes and the quality of life in residential neighborhoods. These issues, however, appear manageable.
Airbnb is now a leaner, better-managed business. Sales and marketing expenses are down by about $1 billion annualized since the pandemic. After the IPO, it is expected to have about $4 billion in net cash.
Its well-timed IPO could be a hit, forcing investors to decide whether they want to pay up for one of the best travel franchises.
Write to Andrew Bary at firstname.lastname@example.org