It’s no secret the Airbnb IPO is one of the most anticipated public offerings of 2020. The company has become interchangeable with the home-sharing and rental concept it launched back in the doldrums of the 2008 financial crisis. Notwithstanding outside competition from online travel operators—namely Booking Holdings [$BKNG] and Expedia [$EXPE]—it remains the industry leader. This Silicon Valley startup-turned-Goliath will trade under the ticker $ABNB.
Throughout the pandy, cautious travelers have opted for private homes over hotels, which has given Airbnb the green light to rebound faster than traditional lodging companies. Airbnb reported an after-tax profit of $219 million in Q3, compared with a loss of $576 million in Q2. While the current quarter is expected to see a downturn amid a global second wave of virus, investors are looking toward 2021 and 2022, when society should normalize with widespread vaccinations.
The market value of Airbnb—sitting around $30 billion at the top of the proposed pricing range of $44 to $50 a share—isn’t necessarily a bargain based on traditional financial measures à la earnings and sales. However, the valuation looks rational given the company’s market position, brand power, and global opportunity at a precarious time when investors tend to value flashy growth companies at more than 10x annual sales.
The IPO, due to price on Wednesday, makes sense under $3 billion at the top of the pricing range and assuming an offering of 57 million shares. That’s less than 10% of the 601 million shares outstanding. Cordwell has begun his coverage, with an Overweight rating and a price target of $75 a share. He forecasts about $1 billion of 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.”
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 leans toward a younger demographic than sites focused on vacation rentals.
NYU marketing professor and tech entrepreneur, Scott Galloway, said Airbnb would be worth over $100 billion by the end of 2022, which would equal 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 in November.
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 $6 billion in 2022, Cordwell estimates.
The Airbnb valuation is above that of lodging leaders Marriot [$MAR] and Hilton [$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. Right when the pandy hit, the company borrowed $2 billion at a stiff rate of almost 10% and handed its lenders valuable equity warrants now worth $200 million. Yet this has humbled Airbnb, which is now laser focused on profitability.
The company 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 home run, pushing investors to decide whether they want to pay a premium for one of the best travel franchises.