Airbnb IPO: Here’s the Only Smart Way to Play

BY Joshua Belanger | November 17, 2020 

There’s no reason at all to let emotion be the driving force behind an investment.

But the fear of missing out can be a powerful motivator, especially when it comes to one of the most anticipated IPOs of the decade.

Investors have been waiting for years, for Airbnb to go public.

Since 2008, the company has been pairing travelers and hosts and has since become a household name. And now, finally, the company is taking the plunge.

According to the documents filed with the SEC, the company plans to trade on the Nasdaq under the symbol “ABNB” and could be priced with a valuation of $30 billion. This would make it the market’s largest listing since Facebook’s $16 billion IPO in 2012. It also plans to offer a direct share purchase program for eligible hosts.

A quick bounceback from the pandemic​​

This announcement came coupled with Airbnb announcing that the third quarter was its most profitable ever. The company has seen a rebound in what it calls short distance stays.

These stays within 50 miles of a person’s home have shown resilience for two reason. First, limiting exposure on the route there. And second, people are growing tired of working from their own home, so this is a change of scenery.

In June, bookings were actually higher than the previous year. Traveling and living are starting to blur together. Vacations can last even longer when there’s no rush to get back to work or school.

The company also saw some success as it moved its experiences feature online. Who wouldn’t want to Some of these are meditate with Buddhist monks, cook with a Moroccan family or hang out with goats in the Catskills? This allowed guests to connect and travel virtually and hosts to continue to make money.

Sounds nice a rosy, yes? That’s far from the case. 

So far in 2020, the company has turned a loss of nearly $697 million on revenues of $2.52 billion. Meaning, that the company has lost more money in the first 9 months of the pandemic than it did in each of the three previous years.

I’m all for looking towards the future and looking for the next emerging market trend. But today, I’m here to tell you to stay far away from this one, especially at that kind of valuation.

Over the course of its existence, Airbnb has raised approximately $6.4 billion from venture capital and private equity firms. In late 2017, the company was valued at $31 billion, but when it secured emergency funds earlier this year, that valuation came in at only $18 billion.

It’s as if one good quarter is supposed to equate to a rebound. That might be the case if the company didn’t have a slew of other issues.

Just last week, routine maintenance caused a very small subset of user accounts to be deactivated. The caused cancellations and has the company trying to rebook the guests impacted. And both guests and hosts have complained about accounts that seem to disappear for no reason at all.

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Despite the expected demand of using Airbnb to escape the cold winter and stay somewhere more favorable, the company is seeing cancellations piling up as states begin another round of shutdowns.

Property supply issue

Plus, with the real estate market on fire, some hosts are going to find that it makes more sense to just sell their property than to bother with the uncertainty of the rental market. Especially if Airbnb keeps adding restrictions, such as the most recent rule that rentals have to be more than one night on holidays.

This has been implemented to stop the use of renting Airbnb locations for a party house. But the company didn’t give much warning and many guests and hosts found Halloween booking cancelled at the last minute. As much as the company wants to say that this helps protects hosts, in the end they don’t want their prime real estate sitting empty on New Year’s Eve.

The answer is then cross listing on other rental sites out there such as Vrbo and TurnKey. The real issue here is that Airbnb isn’t the only one in the game. They may have popularized the concept, but in the end, the performance has to be there to keep the crown.

Hosts already have a sour taste in their mouths from the way that refunds were handled earlier during the first outbreak in the spring. And one host is leading a class action lawsuit since allegedly many guests and hosts were not compensated as promised.

There’s really no silver lining here. Especially when the management has said that the fourth quarter is probably going to be awful.

I’m going to be keeping an eye on this. I think the fear of missing out will cause many people to lose a lot of money. Instead you have to look for the companies that have the lead on unique technology. Those are the kind of stocks I recommend….

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Joshua M. Belanger

Joshua Belanger is the editor of Hot Money Trader and Wealthy Tech Investor. After leaving Wall Street on his own terms, Joshua has been providing ordinary investors blockbuster returns since 2008. In 2018, the average return of Hot Money Trader beat the markets by over 15%.
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