The Airbnb (NASDAQ: ABNB) IPO last week created a lot of excitement within the investment community. In the UK, Airbnb was the sixth most bought stock on Hargreaves Lansdown for the week.
Here, I’m going to look at the investment case for the Airbnb stock. Should I buy it for my own portfolio?
Airbnb stock: should I buy?
Let me start by saying there’s a lot I like about the business. I personally started using the platform in 2012 and, since then, I’ve used it to stay in fantastic apartments all over the world. I’ve always found the platform easy to use and had great travel experiences using it. To my mind, it offers great alternatives to hotels.
Airbnb is also the clear leader in the holiday rentals online marketplace space. It does have some competitors, sure. But they don’t have the same kind of brand power and reputation. Airbnb’s dominance gives it a competitive advantage.
Additionally, the company’s growth has been very impressive. Between 2015 and 2019, for example, revenues climbed from $919m to $4.8bn. I believe there’s plenty of growth ahead. Today, the online travel market is worth about $600bn. Yet, by 2023, this market is forecast to be worth around $900bn.
This market growth should benefit Airbnb stock. The company should also benefit from the retirement of the Baby Boomers sector. This segment of the population – which generally loves to travel – is the site’s fastest-growing demographic.
The ABNB share price could fall
Having said all that, I do have some reservations about Airbnb stock right now. My first concern is there’s a lot of hype around the stock. Airbnb shares were priced at $68 in the IPO, giving the company a valuation of $47bn (up from $18bn earlier in the year).
However, the share price opened near the $150 mark. It seems to me that a lot of short-term traders piled in hoping for quick gains. Now that the ABNB share price is falling, these ‘weak hands’ appear to be exiting the stock.
My second concern is valuation. When the company was valued at over $100bn last week, it was worth more than Marriott, Hilton, Intercontinental Hotels, and Wyndham put together. That strikes me as excessive.
Finally, another concern is the timing of the IPO. You see, Airbnb’s most recent quarter was relatively strong due to the fact it was summer in the US and Europe and Covid-19 rates were down. Gross daily rate – which represents gross booking value per night and experiences booked – for July, August, and September was up 19%, 21%, and 18% respectively.
The problem is, Q4 is likely to be terrible due to Covid-19. And looking at what’s going on right now across the US and Europe, Q1 2021 is likely to be worse. That means we could see some awful numbers from Airbnb in the near term. I expect the stock will be highly volatile as a result.
Airbnb shares: my plan
Weighing all this up, I’m going to keep Airbnb stock on my watchlist for now. This is a company I’d like to invest in. But only at the right price.
I think with a little bit of patience, I’ll be able to buy Airbnb stock next year under $100. Perhaps even under $80. For now, I think there are better stocks to buy.
