Airbnb (NASDAQ: ABNB) stock has rallied by almost 55% since the beginning of 2021 and currently trades at levels of about $216 per share. The stock is up a solid 3x since its IPO in early December 2020. Although there hasn’t been news from the company to warrant gains of this magnitude, there are a couple of other trends that likely helped to push the stock higher. Firstly, sell-side coverage increased considerably in January, as the quiet period for analysts at banks that underwrote Airbnb’s IPO ended. Over 25 analysts now cover the stock, up from just a couple in December. Although analyst opinion has been mixed, it nevertheless has likely helped increase visibility and drive volumes for Airbnb. Secondly, the Covid-19 vaccine rollout is gathering momentum in the U.S., with upwards of 1.5 million doses being administered per day, and Covid-19 cases in the U.S. are also on the downtrend. This should help the travel industry eventually get back to normal, with companies such as Airbnb seeing significant pent-up demand.
That being said, we don’t think Airbnb’s current valuation is justified. (Related: Airbnb’s Valuation: Expensive Or Cheap?) The company is valued at about $130 billion, or about 31x consensus 2021 revenues. Airbnb’s sales are likely to grow by about 37% this year. In comparison, online travel giant Expedia which also owns Vrbo, a growing vacation rental business, is valued at about $20 billion, or just about 3x projected 2021 revenue. Expedia is likely to grow revenue by over 50% in 2021 and by around 35% in 2022, as its business recovers from the Covid-19 slump.
[12/29/2020] Pick Airbnb Over DoorDash
Earlier this month, online vacation platform Airbnb (NASDAQ
Covid-19 Helps DoorDash’s Numbers, Hurts Airbnb
Both Airbnb and DoorDash are essentially technology platforms that connect buyers and sellers of vacation rentals and food, respectively. Looking purely at the fundamentals in recent years, DoorDash looks like the more promising bet. While Airbnb trades at about 20x projected 2021 Revenue, DoorDash trades at just about 12.5x. DoorDash’s growth has also been stronger, with Revenue growth averaging about 200% per year between 2018 and 2020 as demand for takeout soared through the Covid-19 pandemic. Airbnb grew Revenue at an average rate of about 40% prior to the pandemic, with Revenue likely to drop this year and recover to close to 2019 levels in 2021. DoorDash is also likely to post positive Operating Margins this year (about 8%), as costs grow more slowly compared to its surging Revenues. While Airbnb’s Operating Margins stood at around break-even levels over the last two years, they will turn negative this year.
The Airbnb Story Still Has Appeal
However, we think the Airbnb story has more appeal compared to DoorDash, for a couple of reasons. Firstly in the near-term, Airbnb stands to gain considerably from the end of Covid-19 with highly effective vaccines already being rolled out. Vacation rentals should rebound nicely, and the company’s margins should also benefit from the recent cost reductions that it made through the pandemic. DoorDash, on the other hand, is likely to see growth moderate considerably, as people start returning to dine in restaurants.
There are a couple of long-term factors as well. Airbnb’s platform scales much more easily into new markets, with the company’s operating in about 220 countries compared to DoorDash, which is a logistics-based business that has thus far been restricted to the U.S alone. While DoorDash has grown to become the largest food delivery player in the U.S., with about 50% share, the competition is intense and players compete primarily on cost. While the barriers to entry to the vacation rental space are also low, Airbnb has significant brand recognition, with the company’s name becoming synonymous with rental holiday homes. Moreover, most hosts also have their listings unique to Airbnb. While rivals such as Expedia are looking to make inroads into the market, they have much lower visibility compared to Airbnb.
Overall, while DoorDash’s financial metrics currently appear stronger, with its valuation also appearing slightly more attractive, things could change post-Covid. Considering this, we believe that Airbnb might be the better bet for long-term investors.
[12/16/2020] Making Sense Of Airbnb Stock’s $75 Billion Valuation
Airbnb (NASDAQ: ABNB), the online vacation rental marketplace, went public last week, with its stock almost doubling from its IPO price of $68 to about $125 currently. This puts the company’s valuation at about $75 billion as of Tuesday. That’s more than Marriott – the largest hotel chain – and Hilton hotels combined. Does Airbnb – which has yet to turn a profit – justify such a valuation? In this analysis, we take a brief look at Airbnb’s business model, and how its Revenues and growth are trending. See our interactive dashboard analysis for more details. In our interactive dashboard analysis on on Airbnb’s Valuation: Expensive Or Cheap? we break down the company’s revenues and current valuation and compare it with other players in the hotels and online travel space. Parts of the analysis are summarized below.
How Have Airbnb’s Revenues Trended In Recent Years?
Airbnb’s business model is simple. The company’s platform connects people who want to rent out their homes or spare rooms with people who are looking for accommodations and makes money primarily by charging the guest as well as the host involved in the booking a separate service fee. The number of Nights and Experiences Booked on Airbnb’s platform has risen from 186 million in 2017 to 327 million in 2019, with Gross Bookings soaring from around $21 billion in 2017 to about $38 billion in 2019. The portion of Gross Bookings that Airbnb recognizes as Revenue rose from $2.6 billion in 2017 to around $4.8 billion in 2019. However, the number is likely to fall sharply in 2020 as Covid-19 has hurt the vacation rental market, with total Revenue likely to fall by about 30% year-over-year. Yet, with vaccines being rolled out in developed markets, things are likely to start returning to normal from 2021. Airbnb’s large inventory and affordable prices should ensure that demand rebounds sharply. We project that Revenues could stand at about $4.5 billion in 2021.
Making Sense Of Airbnb’s $80 Billion Valuation
Airbnb was valued at about $75 billion as of Tuesday’s close, translating into a P/S multiple of about 16.5x our projected 2021 Revenues for the company. For perspective, Booking Holdings – among the most profitable online travel agents – traded at about 6x Revenue in 2019, while Expedia traded at 1.3x and Marriott – the largest hotel chain – was valued at about 2.4x sales prior to the pandemic. Moreover, Airbnb remains deeply loss-making, with Operating Margins standing at -16% in 2019, versus 35% for Booking and 7.5% for Expedia. However, the Airbnb story still has appeal.
Firstly, growth has been, and is likely to remain, strong. Airbnb’s Revenue has grown at over 40% each year over the last 3 years, compared to levels of about 12% for Expedia and Booking Holdings. Although Covid-19 has hit the company hard this year, Airbnb should continue to grow at high double-digit growth rates in the coming years as well. The company estimates its total addressable market at about $3.4 trillion, including $1.8 trillion for short-term stays, $210 billion for long-term stays, and $1.4 trillion for experiences.
Secondly, Airbnb’s asset-light model should also help its profitability in the long-run. While the company’s variable costs stood at about 25% of Revenue in 2019 (for a 75% gross margin) fixed operating costs such as Sales and marketing (about 34% of Revenues) and product development (20% of Revenue) currently remain high. As Revenues continue to grow post-Covid, fixed cost absorption should improve, helping profitability. Moreover, the company has also trimmed its cost base through Covid-19, as it laid off about a quarter of its staff and shed non-core operations and it’s possible that combined with the possibility of a strong Recovery in 2021, profits should look up.
That said, a 16.5x forward Revenue multiple is high for a company in the online travel business. And there are risks including potential regulatory hurdles in large markets and adverse events in properties booked via its platform. Competition is also mounting. While Airbnb’s brand is strong and generally synonymous with short-term residential rentals, the barriers to entry in the space aren’t too high, with the likes of Booking.com and Agoda launching their own vacation rental platforms. Considering its high valuation and risks, we think Airbnb will need to execute very well to simply justify its current valuation, let alone drive further returns.
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