(Newswire.net — November 30, 2020) — Timing is one of the most important factors in investment. On the one hand, traders have to identify the right moment to either buy or sell a stock. On the other hand, companies have to decide when to implement certain aspects of their strategy plans, including when to go public. For example, Saudi Aramco, as if they had a crystal ball, conducted an initial public offering and raised over $25.6 billion by selling 3 billion shares just a few months before the oil industry suffered one the most dramatic rallies on record.
Airbnb is no exception. Despite the Covid-19 pandemic, we’re in the middle of a historic IPO boom. One of the main reasons is investors’ hunger for fast-growing companies and abundant liquidity. In addition, most of the companies that went public this year benefited in some sense from coronavirus driven trends. Look at the markets now, despite the second wave of Covid-19, new lockdowns, and political uncertainty on a global scale, indexes are at or near all-time highs. Of course, we should also take into account that interest rates are at historic lows, which makes the stock market more attractive.
But the question should be asked, does it make sense to invest in Airbnb’s IPO (ABNB stock)?
First thing first, let’s talk about the company’s history. Airbnb as a project started in 2007 when two designers who had space to share hosted three travelers were looking for a place to stay. To find the money for their startup, they began selling election-themed cereals. As a result, they were able to collect $30,000 selling the Obama O’s and Cap’n McCains. In March 2009 and Airbnb had 2500 listings and was close to 10,000 registered users.
Now, millions of hosts and travelers rely on Airbnb to list their space or book accommodations all over the world. This year, Airbnb celebrates its 12th birthday, but things are not going that smoothly, primarily due to the Covid-19 crisis. As the CEO of Airbnb, Brian Chesky said in an interview on CNBC “It took us 12 years to build Airbnb, and we lost almost everything in four to six weeks.”
Because of quarantines and travel restrictions, Airbnb’s valuation decreased by almost 50%, from $35 billion to $18 billion, in a matter of months. It is also important to say that the whole hotel industry suffered, not only Airbnb. McKinsey research suggests that recovery to pre-COVID-19 levels could take until 2023—or later. Even though their stocks are recovering slowly but steadily.
It is also true that smaller hotels must have gone out of business due to the Covid-19 pandemic. The good part of Airbnb in that sense is that it doesn’t own any land or physical hotel, doesn’t need hundreds of people to maintain it and didn’t have to get into loans to stay afloat.
In terms of revenue, unless companies like Uber, WeWork, or Casper, Airbnb’s profit wasn’t not only positive but also presented an amazing growth. Revenue was $423 million in 2014, $1.7 billion in 2016, and $4.7 billion in 2019. Earlier in March, Airbnb had $3 billion in cash. Still, the company was looking to extend an existing $1 billion debt facility as the home rental start-up grapples with a slowdown due to the coronavirus.
For the nine months ended September 30, 2020, Airbnb had 146.9 million Nights and Experiences Booked, a 41% decrease from 251.1 million Nights and Experiences Booked for the comparative prior-year period. The decline was most severe in the second quarter, with Nights and Experiences Booked declining 67% from the prior-year period, but its business improved in the third quarter with a decline of 28% from the prior-year period according to S-1 securities filling.
In 2019, Adjusted EBITDA decreased to $(253.3) million primarily due to significant investments in growth initiatives and investments in our technical infrastructure. In 2018 and 2017, Adjusted EBITDA was $170.6 million, representing 5% of revenue, and $60.0 million, representing 2% of revenue, respectively. In 2018, Adjusted EBITDA increased as our annual revenue grew 43%, offset by ongoing growth initiatives.
In terms of Cash Flow, in 2019 it was $97.3 million, representing 2% of revenue, compared to $504.9 million in 2018, representing 14% of revenue, and $151.0 million in 2017, representing 6% of revenue. Free Cash Flow decreased in 2019 largely due to higher operating expenses, while it increased in 2018 primarily due to higher operating income and to a lesser extent, lower capital expenditures.
For the nine months ended September 30, 2020, Free Cash Flow was $(520.1) million, compared to Free Cash Flow of $319.8 million in the prior-year period. The decrease was due to the reduction in Nights and Experiences Booked and GBV due to the COVID-19 pandemic, as described above, offset by cost reductions. In the third quarter of 2020, Free Cash Flow was $328.0 million, compared to $(78.4) million in the prior year, reflecting an increase in accrued expenses and other liabilities and a lower decrease in unearned fees.
The initial goal is to raise three billion dollars, but a price per share for the IPO is not yet set. The company is reportedly valued at $18 billion, less than half of what it was worth before the pandemic wrecked the travel industry.
In conclusion, Airbnb still presents an interesting opportunity, and its business could stabilize after the covid-19 pandemic ends.