One of the world’s most valuable startups – Airbnb (NASDAQ:ABNB) – will finally make its long-awaited debut on Wall Street. The travel technology company is ready to go public under the ticker “ABNB” on the Nasdaq Composite at a price of $68. It’s expected that Airbnb stock will more than double in its first day of trading, reaching $154.
This move naturally prompts the obvious question: Should you invest in Airbnb stock?
My answer is simple. Yes.
That may seem counterintuitive. After all, the Covid-19 pandemic has killed the global travel industry, and caused Airbnb’s revenues to collapse in 2020. But:
- Airbnb’s valuation reflects these near-term challenges.
- The company successfully innovated amid the pandemic to sustain a healthy revenue base.
- Travel demand will rebound in 2021-22.
- Robust consumer thirst for experiences — both virtual and physical — implies that Airbnb will return to big growth post-2020 and sustain that big growth for the next five to 10 years.
So, for all those reasons, I say yes, you should invest in the Airbnb IPO and buy ABNB stock.
Here’s a deeper look.
Invest in Airbnb’s IPO: Valuation Cut
Much like Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), Airbnb’s valuation did take a major hit amid the Covid-19 pandemic. During its most recent private funding round in April 2020, the travel company was valued at just $18 billion — versus a $31 billion valuation in 2017.
To be sure, also much like Uber and Lyft, Airbnb’s valuation has since rebounded. On its IPO, Airbnb stock is fetching a $47 billion valuation.
Still, at $47 billion, one could consider that a “haircut,” which reflects near-term operating challenges.
After all, the company was valued at $31 billion in 2017. Three years later, Airbnb’s valuation has risen just over 50%, or about 15% per year.
That’s very reasonable for a hypergrowth tech company like Airbnb. Some might call it shockingly tepid.
Indeed, for a company that’s redefining the multi-trillion-dollar global travel industry, a sub-$50 billion valuation is a steal — meaning the Airbnb IPO is an opportunity to buy ABNB stock at an attractive discount.
Innovation During Covid-19
Airbnb management didn’t just sit on the their hands and let the Covid-19 pandemic destroy the company’s core travel business.
Instead – behind CEO Brian Chesky, who said that “every one of these crises is going to lead to a new point of innovation” – Airbnb innovated and pivoted to adapt to a world temporarily shut down by a pandemic.
Specifically, the company re-branded as an online experiences marketplace. Consumers can book virtual appointments and meetings with travel gurus and different individuals offering online classes and experiences. Forbes offered the examples of learning how to “mix up sangrias from a group of drag queens in Portugal,” meditate with “sleepy sheep in the United Kingdom” and “dance tango in Argentina.”
In so doing, Airbnb made itself relevant to consumers again. This was even during a time when its core travel and rental business was entirely shut down.
That’s impressive innovation.
And it speaks to the move-it-forward culture at Airbnb, which creates a solid foundation for sustained long-term growth, regardless of what curve balls the world throws at the company.
Long-term investors should align themselves with this innovation and move-it-forward culture by buying into the Airbnb IPO.
Rebounding Travel Demand
Travel demand won’t stay dead forever.
With Covid-19 hysteria fading and mobility restrictions easing, consumers can and are traveling again. Not surprisingly, Airbnb’s bookings are rebounding, from a 70% drop in May, to a 30% drop in June. Considering continued gains in U.S. air travel traffic since June, it is quite likely that Airbnb’s bookings will turn positive soon.
In other words, it is quite likely that Airbnb is almost back to normal bookings levels, and we still don’t have a Covid-19 vaccine on the market.
Imagine what will happen when we do finally get an approved Covid-19 vaccine that is safe and easily accessible to the general public. Pent-up consumer travel demand will be unleashed. You’ll get this post-war feeling all across the globe. And the Airbnb growth narrative will resume, with growth rates recovering to the 35% levels they saw in 2019.
That’s a reality that is coming soon, likely by mid-2021.
As the reality inches closer and eventually arrives, ABNB stock will outperform.
Endless Consumer Thirst for Experiences
If the Covid-19 pandemic underscored anything about Airbnb and the travel industry, it’s these two things:
- Airbnb isn’t a travel company; it’s an experiences company. Regardless of the status of the broader travel environment, Airbnb will be there for consumers to match them to great experiences. These can be physical experiences like a great beach house for a weekend, or virtual experiences like learning how to tango.
- Consumer demand for experiences is resilient. Whether they are out and about exploring the world, or stuck at home browsing the internet, consumers want great experiences. They want things that will entertain them, engage them and make them happy. The only thing that changes is the type of experiences. Consumer demand for experiences doesn’t change, ever. It’s always robust.
Considering these two realities, the writing is on the wall for Airbnb stock.
Over the next five to 10 years, we will increasingly pivot into an experience-driven economy, and Airbnb will become a go-to marketplace to match them with great experiences, both virtual and physical.
To that end, those who invest in the Airbnb IPO and buy ABNB stock will benefit from a compelling, multiyear growth narrative that will spark strong returns.
Should You Buy Airbnb Stock?
Covid-19 hit Airbnb hard. But it didn’t kill the company. If anything, it only made the company stronger, by forcing management to widen the scope of Airbnb’s platform to include virtual experiences.
Now, Airbnb is ready to rebound. It really is no wonder the company is going public today, at a critical inflection point wherein its growth narrative will likely catch fire like never before in 2021.
I say buy the Airbnb IPO — Buy ABNB stock and hold it for the next five to 10 years. This is a long-term winner.
Editor’s note: This story was originally published on Sept. 3, 2020. It has since been rewritten with new information regarding Airbnb’s IPO.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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