Should You Invest in Airbnb?

Airbnb’s share (ABNB) was priced at $68 a share on the NESDAQ but the company started trading at over $150 a share on the first day of listing (10 Dec 2020) and closed the day at $144.70.

Founded in 2008 after co-founders Joe Gebbia, Brian Chesky and Nathan Blecharczyk came up with the idea of renting air mattresses in their San Francisco apartments. Airbnb now has more than 7m short-term listings worldwide. And at $100bn, it is valued at twice the value of Marriott, the largest hotel operator.

Source: Harvard Business Review

What makes ABNB so valuable?

The Marketplace: As of Sept. 30, 2020, the company reported 7.4 million available listings, 5.6 million of which are considered active listings. That scale is more of an advantage than one might realize. Airbnb's marketplace has strong network effects, in that the more people who use it, the more powerful and useful its platform becomes. It's a trait shared by several leading online operators, including Facebook (FB), Alibaba (BABA) and eBay (EBAY).

Organic reach: The company says that during the first nine months of 2020, 91% of all traffic to Airbnb came through direct or unpaid channels.

Economic improvement: Any advances against COVID-19 – specifically, potential vaccines from the likes of Pfizer (PFE) and BioNTech (BNTX), Moderna (MRNA) and others – are expected to be a boon for the entire travel industry, Airbnb included.

Market opportunity: Airbnb estimates the size of its total addressable market is a staggering $3.4 trillion. This includes $1.8 trillion for short-term stays, $1.4 trillion for travel experiences, and $210 billion for long-term stays and $1.4 trillion for travel experiences. There's plenty of room for multiple operators.

The "Google" effect: Airbnb is beginning to become Google-fied. The word "Airbnb" is becoming at the top-of-mind, the way people describe this new form of vacationing. This, even when one is not actually using Airbnb itself.

The experience: Airbnb's service allows for more compelling experiences than the ordinary hotel room. It's described well in the S-1: "Instead of traveling like tourists and feeling like outsiders, guests on Airbnb can stay in neighbourhoods where people live, have authentic experiences, live like locals, and spend time with locals in approximately 100,000 cities around the world."

Meanwhile, ABNB faces several risks which investors should consider too:

Legal uncertainty: While renting out one's home has been normalized thanks in large part to Airbnb, it's still not a settled area from a legal standpoint. And the powerful hotel industry lobby has been aggressively working to get municipalities to enact strict regulations against these sorts of home-renting services.

Risks to hosts and guests (part 1): Hosts and guests alike take on numerous risks in these home-renting transactions. Airbnb admits that "there have been shootings, fatalities, and other criminal or violent acts on properties booked on our platform," as well as "sexual violence against hosts, guests, and third parties," and "undisclosed hidden cameras at properties." A growth in such issues could deter hosts from continuing to engage with the platform.

Risks to hosts and guests (part 2): In many cases, hosts have made claims seeking compensation for several violations committed against them and their homes. "These claims subject us to potentially significant liability and increase our operating costs and could materially adversely affect our business," the company writes.

Competition: Airbnb must contend with online platforms such as Booking Holdings (BKNG), Expedia (EXPE) and Trip.com. It even faces competition from search engines and meta-search sites, including Google, Baidu (BIDU), TripAdvisor (TRIP) and Trivago (TRVG) that control huge web traffic. There are also competitors like Airbnb, such as Vrbo and Expedia's HomeAway. And of course, there's an entire hotel industry to deal with.

The analysis of ABNB above is largely reposted from Yahoo Finance. Remember, whether you decide to buy ABNB shares ultimately comes down to your own risk appetite and investing horizon. MPCA accepts no responsibility or assumes any liability for your decision to invest or otherwise.

 

Reference:

1.     Airbnb soars to near $100bn valuation as shares more than double in IPO, 10 Dec 2020, The Guardian

2.     The Airbnb IPO: Should You Buy ABNB? 10 Dec 2020, Yahoo Finance