One of the most hotly awaited initial public offerings (IPO) will land later today as online booking platform Airbnb sold its shares at $68 each, way above the $44 to $50 range estimated only last week.
That’s blown any lingering doubts about investors’ appetite for intriguing growth stocks right out of the water. Airbnb, which will start trading when the US markets open later today, has raised around $3.5 billion.
The IPO gives Airbnb a fully diluted valuation (including share options) of $47.3 billion, making it the biggest by a US company this year.
COVID-19 RECOVERY
Airbnb’s IPO success marks a strong bounce-back for a company at the sharp end of pandemic travel restrictions. In April, Airbnb raised $1 billion from private equity firms Silver Lake and Sixth Street Partners as it sought to boost its cash reserves amid a decline in revenue.
That fundraising valued Airbnb at $18 billion, below its $26 billion valuation in early March before the pandemic began, according to Reuters.
Airbnb reacted by concentrating on domestic breaks and it also launched a string of cost cutting measures, including a hiring pause, suspending marketing and slashing executive pay in an effort to save up to $800 million this year.
‘Airbnb has not done as badly as peers during the pandemic and to some extent has made the private getaway more appealing than staying in a hotel/resort’, said Markets.com analyst Neil Wilson.
As lockdowns ease and with more travellers opt to book homes instead of hotels, Airbnb's revenue rebounded from a summer slump to reach $1.34 billion in the third quarter. The company also posted a surprise profit of $219.3 million, down slightly from $266.7 million last year.
The outlook is much stronger for 2021 now that vaccines are coming. ‘Having been relatively resilient during the pandemic, Airbnb could kick on and benefit from a get out and travel trend in 2021’, said Wilson.
GROWTH OVER PROFIT
But some analysts sounded a note of caution over Airbnb, a company that has yet to post an annual profit.
‘As the market returns, it is likely that marketing costs will rise again as paid channels are leveraged by Airbnb to drive gross merchandise value (GMV) growth and this could add additional pressure to the bottom line’, said Dan Thomas, senior analyst at private equity researcher Third Bridge.
GMV is effectively revenue in Airbnb’s case.
‘Booking Holdings is a formidable competitor’, pointed out Thomas. ‘In full year 2019 it generated almost $4.9 billion in operating cash and it has been fine-tuning its performance marketing funnel and has shown an appetite for vacation rentals.’
Airbnb will trade on Nasdaq under the ticker ABNB.
