Listen to what is not being said

This year, IPO’s on U.S. exchanges have raised a record $140 billion, exceeding the $107 billion raised in the height of the 1999 dot-com boom.

It has also been a week when we have seen;

✔️ Tesla announce its 3rd (secondary) equity sale this year.
The timing of the previous offerings uncannily occurred at interim market highs;

✔️ the most ridiculous IPO in DoorDash;
(stock doubles on its first day, market cap is $60bn vs. $16bn in early 2020)

✔️ and Airbnb premiered on the bourse with an IPO of its own.

The process of pricing of Airbnb’s IPO began between the $44-$50 per share range which was revised to $56-$60 while the final price struck was at $68.

Unlike Facebook’s IPO pricing debacle in 2012, I think Airbnb’s pricing was spot-on.

The after-market demand saw the stock close at $145 on its first day of trading. With $602 million shares outstanding, it now has a market cap of $87 billion.

But on a fully diluted basis (including employee stock, options and restricted units) Airbnb has 700m shares, so its Market Cap is $101 billion.

and DoorDash has 385m shares, which adjusts its Market Cap to $71.5 billion, which is a little bit too much when you are losing $150 million and trading on 30 times revenue.

December 11, 2020
by Rob Zdravevski

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.

November 24, 2020

by Rob Zdravevski

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