Warming to Airbnb

Some reasons I am taking a shine to Airbnb’s IPO include;

a) Airbnb is the largest brand in hospitality.

b) It’s so ubiquitous in our vernacular that I simply choose to “airbnb it” on my next trip.

c) It has an incredibly large business moat with a huge network of supply (hosts) and demand (guests).

d) the 2 most gleaning lines that I picked up from its S-1 are;;

“Our hosts largely come to us organically with 79% of our hosts coming directly to our platform to sign up to host in 2019.”

“Most of our guests discover Airbnb organically, with approximately 91% of all traffic to Airbnb coming through direct or unpaid channels during the nine months ended September 30, 2020.”

This means Airbnb doesn’t really need to pay any third party sites including Google or Facebook, in order to direct traffic and potential customers their way, unlike the hotel chains and other associated accomodation businesses.

Such organic traffic is ‘golden’ and unique.

e) And the company is choosing to go public at a point at a trough in the travel and leisure industry. 

Critics may focus on the company being “asset-light”. 

Well, I say, why not ?

I don’t think I want to own shares in an accomodation business with relatively fixed costs, which in turn owns (or needs to service debt) properties and then manage and maintain these hard assets which are only (if not singular) in a selected few locations.

It’s not tempting to own shares in Marriott or Hilton?

Amongst the ‘asset light’ universe, Mastercard and Visa both trade near 22 times revenue.

If we take Airbnb’s $5 billion revenue and place it on 15 times multiple, you get a market cap of $75 billion, which is notably higher than the touted $30-$35 billion IPO valuation.

And if we look at ‘asset light’ Uber, which has a market cap of $88 billion, I somewhat dismiss their $13 billion of revenue when they are losing $5 billion per annum and have never had a profitable quarter.

While Airbnb have reported profitable quarters, with its most recent (Q3 2020) being $220 million and on track to be in the black in 2021.

Below is the link to Airbnb’s S1 registrstion.

https://www.sec.gov/Archives/edgar/data/1559720/000119312520294801/d81668ds1.htm#toc81668_11

November 24, 2020

by Rob Zdravevski

rob@karriasset.com.au