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10 December 2020

AirBnB presses ahead with IPO

AirBnB (ABNB) is proceeding with its initial public offering (IPO) today (10th November) to become listed on the US Nasdaq, targeting a valuation of US$42bn, which has increased from the previously expected valuation of US$34.8bn. The company previously referred to a price range of US$44 to US$50 in its regulatory filings last week, but has since upped these expectations.

It is an interesting move to go through with an IPO towards the end of the year, when many fund managers and institutional investors begin to lock-in their performance for the year. If these investors benchmark their performance against the Nasdaq and they have underperformed the market, this may drive up the demand to gain from a potential jump in the share price. Vice versa, for the institutional investors outperforming the Nasdaq, they may remain conservative and not partake in the IPO due to the potential downside risk.
Just like the rest of the travel industry, AirBnB felt the full force of Coronavirus. The company had to raise emergency funding of US$2bn just to stay afloat, also cutting a quarter of its workforce while cutting expenses in other areas of spending in an attempt to offset the decline in demand for short term stays. This new valuation is assuming that the company can grow its revenue by 36% compounded annually for the next five years, which is a lofty expectation to say the least, but can it be justified?

In short, the company has a significantly large global footprint with c7.6 million rooms/listings worldwide, whereas booking.com, Marriott Rooms and Hilton Worldwide rooms only have 6.2m, 1.4m and 1m, respectively. In addition, with the roll-out of vaccines causing travel industry stocks to spike as the outlook for the sector looks slightly rosier, we can expect that AirBnB should be able to capitalise on the sector’s recovery and the pent-up demand for international travel. As lockdown restrictions slowly lift, AirBnB could be a market leader in the sector by providing an immensely seamless process of booking and cancelling rooms without significant costs to the consumer, along with the huge variety of potential locations and properties.

Investors have been craving a stock which will be a significant riser out of depressed sectors such as travel, energy and financials, and AirBnB has the potential to be just that. Investors have flocked to technology to generate their high returns over the Coronavirus period and turned their backs on travel and leisure. But with the valuations of technology looking generally high, the tides may be turning. The fact that AirBnB utilised technology in integration with travel will be very exciting for investors. Just how Uber provides a taxi service while owning no vehicles, AirBnB offers places to stay without owning any property. This may offer a way to lock in good long-term returns as the travel and hospitality sectors recover as lockdowns are lifted and the floodgates for international travel are opened.

Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
 
AirBnB presses ahead with IPO
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