16 BARRON’S December 7, 2020
Airbnb, which will trade under the
ticker ABNB, to rebound more quickly
than traditional lodging companies.
Airbnb reported an after-tax profit of
$219 million in the third quarter, com-
pared with a loss of $576 million in the
second quarter.
With its asset-light business model
and global presence, the company is
poised to benefit from a rebound in
travel. While the current quarter is
expected to be weak amid a worldwide
resurgence of Covid-19, investors are
looking toward 2021 and 2022, when
the world should normalize with wide-
spread vaccinations.
The proposed market value of
Airbnb—around $30 billion at the top
of the proposed pricing range of $44 to
$50 a share—isn’t cheap based on tra-
ditional financial measures like earn-
ings and sales.
But its valuation looks reasonable
given the company’s market position,
Airbnb: A Hot Property
With Room to Grow
The online home-sharing platform, which will soon go public, is poised to benefit when
travel rebounds. Traditional lodging companies should beware.
A
irbnbcould be one of the
hottest initial public offer-
ings of the year.
The company has be-
come synonymous with
the home-sharing and
rental concept that it pio-
neered more than a decade ago. And
despite competition from online travel
operatorsBooking Holdings(ticker:
BKNG) andExpedia Group(EXPE),
which runs the Vrbo site, it remains
the industry leader.
“It’s the Apple of travel,” says James
Cordwell, an Atlantic Equities analyst.
“Like Apple, Airbnb’s brand-building
approach and design of its app have
helped foster a sense of community
and connection among users.”
During the pandemic, risk-averse
travelers have favored private homes
over hotels, and that has enabled
By ANDREW BARY Airbnb isn’t the only
big IPO this coming
week. DoorDash will
make its debut, but
Eric J. Savitz says
investors should be
wary.See Tech
Trader, page 37.
scarcity value, brand power, and global
opportunity at a time when investors
regularly value exciting growth com-
panies at considerably more than 10
times annual sales.
Its IPO, which is due to price on
Wednesday, looks digestible at under
$3 billion at the top of the pricing range
and assuming an offering of roughly 57
million shares. That’s less than 10% of
the 601 million shares outstanding.
(Another 40 million shares are linked
to deep-in-the-money options and
soon-to-vest restricted stock.) All this
should prompt strong demand, and
Airbnb’s share price could end the
week appreciably above $50.
Cordwell has already begun cover-
age, with an Overweight rating and a
price target of $75 a share. He projects
about $1 billion of earnings before in-
terest, taxes, depreciation, and amorti-
zation, or 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 reve-
nue 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 $
million for Luxury Retreats, now
Airbnb Luxe, which has rentals for as
much as a few thousand dollars a night.
The company skews younger than
sites geared toward vacation rentals.
Millennials account for the bulk of its
business, and its average daily rate is
around $130 a night.
Scott Galloway, a New York Univer-
sity marketing professor and tech en-
trepreneur, has said that Airbnb would
be worth over $100 billion by the end
of 2022, which would translate into a
price of about $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 last month.
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 ex-
pected 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 leadersMarriott Interna-
tional(MAR) andHilton Worldwide
Holdings(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.
One knock against Airbnb has been
that its free-spending ways resulted in
a sizable loss last year despite strong
revenue growth. Sales rose 33%, to
$4.8 billion, in 2019, but the company
lost $674 million as it spent heavily on
sales and marketing and building its
Chinese business.
When the pandemic hit, the com-
pany had to borrow $2 billion at a
steep average rate of nearly 10% and
give its lenders valuable equity war-
rants now worth $200 million. Yet this
has chastened Airbnb, which is now
more focused on profitability.
Another worry has been the com-
pany’s relationships with local govern-
ments that may have concerns about
taxes and the quality of life in residen-
tial neighborhoods. These issues, how-
ever, appear manageable.
Airbnb is now a leaner, better-man-
aged business. Sales and marketing
expenses are down by about $1 billion
annualized since the pandemic. After
the IPO, it is expected to have about $
billion in net cash.
Its well-timed IPO could be a hit,
forcing investors to decide whether
they want to pay up for one of the best
travel franchises.B
The Inn Crowd
How Airbnb stacks up against online travel operators and lodging leaders.
Recent YTD Market 2020E 2021E 2021E 2021E
Company / Ticker Price Change Value (bil) Rev (bil) Rev (bil) EPS P/E
Airbnb/ ABNB $50* N/A $30.1 $3.3 $4.3 -$1.59 N/A
Booking Holdings/ BKNG 2,096.63 2.1% 85.9 6.8 10.4 57.64 36.
Expedia Group/ EXPE 127.35 17.8 18.0 5.4 7.9 0.77 164.
Hilton Worldwide/ HLT 109.16 -1.6 30.3 4.6 7.0 2.10 51.
Marriott Int’l/ MAR 132.32 -12.6 42.9 10.8 14.9 2.51 52.
*High end of estimated pricing range. E=Estimate; N/A=Not applicable. Sources: Bloomberg; company reports; Atlantic Equities Illustration by Ben Mounsey-Wood