Airbnb Still Proceeds with the IPO

Airbnb IPO analysis

Airbnb’s IPO was delayed by the coronavirus pandemic and nobody expected the company to go public in 2020. However, Airbnb Co-founder and CEO, Brian Chesky is ready to make Airbnb a public company as he hopes that the markets are ready for it and people are willing to travel. Filing for IPO comes after some signs of market revival in the travel industry—in Summer, travel companies bounced back after March lows but prospects remain unclear.

The company was valued at over $30 billion by investors before the pandemic but its value dropped below $20 billion in March 2020. In addition to that, bookings dropped 70% in May, followed by a 30% decline in June. This does not seem abnormal considering the overall performance of the travel industry in these months.

The home rental company managed to raise $2 billion in debt and laid off 2,000 employees (16% workforce reduction) in May 2020. These funds seem to be enough for the company to get through the coronavirus crisis.

How does Airbnb make money?

Airbnb is a peer-to-peer company that allows individuals to rent their properties since 2008. After getting an international reach and expanding to more than 200 countries, Airbnb started to offer other services to its customers. These services include Airbnb Experiences (various activities and adventures), Airbnb Collections (full homes, private rooms for special occasions), and Airbnb Plus (popular and highly rated homes).

Airbnb charges fees to both hosts (people who rent out their homes) and guests (travelers who stay at the properties). The fees depend on the size of the reservation.

Who are Airbnb’s competitors?

Airbnb’s competitors include Tripping.com, HomeAway, FlipKey, HouseTrip, and VacayHero. In contrast to these companies, Airbnb has a broader market reach across the globe which makes it one of the most prominent leaders in the industry.

Booking.com, Expedia, and Tripadvisor may also be considered to be competitors for Airbnb. Out of these companies, Booking.com has the largest market cap of $72 billion. Most of the travel companies reported an increase in bookings in July 2020.

While Booking.com takes the lead, Airbnb will most probably have a larger market cap than both Expedia and Tripadvisor after the IPO.

What will be the price of Airbnb shares after the IPO?

All the information related to filing for the IPO remains confidential. It is hard to speculate about the prices because they may highly depend on the number of shares issued as well as volatile market conditions. The media hype may also push the prices higher than expected.

Should I add Airbnb to my portfolio?

Even though Airbnb has a working business model and it enjoys clear advantages over its competitors as well as a positive outlook from a vast number of investors and media, its future still significantly depends on general market forces of supply and demand. The travel industry is hard to see to return to its pre-pandemic positions in 2021—in a good case scenario, 2022-2023 seems to be more adequate—which may be a reason for staying away from Airbnb for a while and not jumping in the hype right away with all of your resources. However, if Airbnb comes at a fair price, it seems to be a wonderful company with a good competitive edge that is worth holding for long-term gains. Investing small portions of your funds periodically, diversifying your portfolio, and aiming at long-term gains may be the best strategy in this case.

This is not financial advice. The article is published for information and education purposes only. Before making any investment decision, you may need to do your own due diligence.

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