Airbnb has the biggest, cheapest, and perhaps quirkiest rooms to sleep in around the world
(REUTERS)
Airbnb’s stock market flotation was today priced even higher than its already-stratospheric guidance led us to believe.
When it comes to market on Wednesday, the lettings platform will be valued at up to $42 billion.
If it was a human, she/he/it would not have even chosen her/his/its GCSE options. So it’s fair to say the valuation is rich, as they say in the City.
The question is, too rich?
Should you be risking your hard-earned on a stock barely old enough to get acne?
Bizarre though it may sound, for me, the answer is yes. Even at these prices:
Market and brand presence
Many bears on Airbnb’s valuation will tell you it is puffed up like a soufflé (with apologies to Elon Musk). They’ll tell you it has hardly any assets to speak of, other than a bunch of code that makes up an online platform.
It has nothing like the epic presence, history or expertise in the hospitality world as, say, Marriott or Hilton.
That means it could be copied easily by rivals and vanish as quickly as it came like so many online hotel bookings sites did in the noughties.
Therefore, it’s totally wrong to value it at more than an established hotel operator.
Wrong, wrong, wrong.
Airbnb may not run five, four or even three star hotels. It may not have the first clue about how to fold a doily, or what sandwiches to serve at high tea.
It doesn’t need to.
Rather than adopt the old hoteliers’ views of what the hospitality industry should provide, it prefers to ask its customers what they want.
And that’s the biggest, cheapest, perhaps quirkiest selection of rooms to sleep in across the world.
It does this quickly and easily, through brilliant technology and has made itself into a killer brand.
Ask yourself: can you name another global property sharing app? Thought not.
Can you think of any other brand that has created and dominated a sector so thoroughly?
I can. Amazon.
I’m not saying the market for accommodation is as big as the market Amazon created for selling, well, everything, online.
But the way Amazon has kept itself and its global brand so far ahead of any opposition seems a compelling parallel to me.
It will recover quicker than the hotels sector from the Covid effect
You might think a giant Marriott hotel, with an army of uniformed cleaners spraying every surface in sight 24 hours a day, would provide the kind of environment people want when they choose somewhere to stay these days. But think again.
Turns out, they’d rather stay somewhere where as few people as possible have been congregating. Among hotels, that’s the ones with the smallest, most automated lobbies.
But better still, a private home where barely anyone has been in the past 24 hours.
Airbnb outperformed the rest of the market this year when travel restrictions were lifted.
The Covid impact on holiday travel will be relatively short-lived
Many investors say travel will take years to recover from coronavirus as people have been scared out of their wits at the thought of leaving their own countries.
It’s an argument, but I’m far less pessimistic.
More likely, it seems to me, is that there are millions – perhaps hundreds of millions – of people who are just desperate to travel.
Having been cooped up at home, had their gap years ruined, forced to self-isolate for weeks on end, my bet is demand for travel will bounce back like we’ve never seen before once the vaccines take hold.
When the Canary Islands were opened up for Brits to visit in October, EasyJet saw a 900% surge in demand for flights. And that’s just one small string of islands off the coast of Africa. Imagine the demand when the rest of the world opens for travel.
And the most willing to travel first will be the young, who are the very core of Airbnb’s market.
The company’s profit performance is picking up
It’s true that Airbnb has never made a profit on an annual basis. Neither have many of the most valuable tech stocks in the world.
In the third quarter, it made $219 million, albeit the new round of lockdowns in the current quarter will have killed that off somewhat.
During Covid, it has gone through a painful cost-cutting process – including laying off a quarter of its staff.
That means that, when the market picks up, far more of the revenues pouring in will drop through into profits. That could well see earnings surge exponentially in the coming years.
Cities will not ban Airbnb
There are many cities who have tried to stop or limit Airbnb’s explosive growth for fear that they’re disrupting local property markets and pricing out local people (it’s true – Londoners see it in their neighbourhoods every day).
But the company has been dealing with these situations fairly carefully and continues to thrive in most cities despite local antipathy.
Like Amazon and Uber, local people may complain about them, but they still love to use them, be they property owners or guests.
Few local authorities want to stamp out a popular service.
::The valuation is not far above hotel booking sites
Valuing a business is hard at the best of times. When it has nothing to compare it against, it’s darn’ near impossible.
Airbnb is expected to make about $4.2 billion sales next year, which means its float, at the very top end of the pricing range, would price it at 10 times sales.
That is certainly higher than Marriott and Hilton, whose shares trade at three-or-four times 2021 revenues.
But it’s not outlandishly higher than Booking Holdings, the owner of Booking.com, which trades at eight times sales.
And Booking – a decent business, mind – has plenty of rivals to threaten its future.
Nobody does what Airbnb does at scale.
The most entertaining commentator on tech stocks for my money is New York professor Scott Galloway.
He describes Airbnb as Airbnballer (a complement) and wrote recently: “I believe this time next year, Airbnb will be the most valuable hospitality firm in the world and one of the world’s 10 strongest brands.”
He suggests valuing this asset-light, high margin business like a credit card company – at 20 or more times revenue. Which gives him a fair value for Airbnb of $100-$120 billion.
That sounds pretty crazy.
But, believe it or not, $42 billion doesn’t.
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