Vacation rental company Airbnb (NASDAQ:ABNB) publicly listed just over two months ago. Now it’s getting set to report its first earnings call as a publicly traded firm (on Thursday, February 25, 2021). And all eyes will be on its recent Q4 progress. The Airbnb share price has accumulated close to 200% during this time. Giving the company a tremendous market valuation of $118 billion.
Rising from the ashes
This is particularly phenomenal because when the pandemic hit, it looked as if Airbnb was done for. However, it made a remarkable recovery and went ahead with an initial public offering (IPO) in December, much to everyone’s surprise. The principal reasons for this, are its future potential and ability to diversify and grow.
The company is no longer just a home from home for independent travellers. It’s got something for everyone, both domestically and abroad. The company has also diversified into offering work-from-home possibilities and experiences.
These experiences are both in real-life and virtual. And they cover a multitude of options, from learning to cook specific cuisine, to enjoying a virtual tour of a big cat sanctuary, or discovering something new with friends.
In the first nine months of 2020, Airbnb’s gross booking value (GBV) declined by 39%. Q4 may continue to follow this trend with many parts of Europe and the UK still in lockdown. However, when lockdowns lift, domestic holidays are likely to be in high demand, so Airbnb could continue to do well. Particularly considering travel restrictions and forced quarantine are likely to remain in place throughout 2021.
Too much, too soon?
There has certainly been considerable optimism fuelling the rise in Airbnb’s share price. That’s powered by its long-term growth potential in a post-pandemic world, and impressive track record so far. Prior to the pandemic, the company had enjoyed strong growth, with bookings surging 29% during its full fiscal year for 2019.
Nevertheless, optimism is now well and truly baked in, possibly to unrealistic highs. In its US Securities And Exchange Commission (SEC) filing prior to IPO, the company warned Q4 will continue to reflect a negative impact from Covid-19’s ongoing presence.
“Similar to the impact of the initial COVID-19 wave in March 2020, we are seeing a decrease in bookings in the most affected regions. As a result, we expect greater year-over-year decline in Nights and Experiences Booked and GBV in the fourth quarter of 2020 than in the third quarter of 2020 and greater year-over-year increases in cancellations and alterations in the fourth quarter of 2020 than in the third quarter of 2020.”
Has Airbnb’s share price reached its pinnacle?
However, many investors see Airbnb as a true disruptor in a modern world. And this may well lead it to become the preferred option over hotels long after the pandemic is under control. That’s because it offers a socially distant, self-contained, and very often tailor-made choice to travellers.
Yet, some people prefer hotels because there’s a standardised approach to cleanliness that gives more reassurance of a deep clean. Whereas it could be hit or miss when renting private accommodation. But that’s debatable, and it really comes down to personal preference as the same could easily be said of hotels.
Airbnb has brought in stricter health and hygiene measures for hosts to adhere too. And considering the transparent way the business is built on reviews, means it’s in the hosts interests to go above and beyond to provide an excellent experience to guests.
Compared with traditional hotel chains, Airbnb’s $118 billion valuation is astronomical. For instance, Marriott International (NASDAQ:MAR) has a $47 billion market cap and Hilton Hotels (NYSE:HLT) $33 billion.
According to Bloomberg data, expectations are that Airbnb’s Q4 results will bring an adjusted EBITDA loss of $132.86 million, based on revenue of $739.37 million. In 2019, Airbnb’s Q4 revenue was $1.1 billion and EBITDA loss was $276.39 million.
What happens if Airbnb insiders sell their shares?
An IPO usually comes with a lock-up period preventing insiders or large shareholders from selling their shares. Airbnb was unusual in that it let employees and some others sell their shares within the first week if they wanted to. That was to allow loyal employees and hosts a chance to cash in.
Then a second lockup period commenced which will end after this Q4 earnings call for other insiders. If these shareholders decide to sell then that may cause the share price to dip. Insiders selling is not always a bad sign though.
Can Airbnb capture a bigger piece of the total addressable market?
In Airbnb’s prospectus it sells the extensive $3.4 trillion market opportunity available to the firm. This total addressable market (TAM) has become a much debated talking point among analysts and investors. Some see it as grossly over exaggerated and unattainable, while others believe the opposite. Airbnb currently generates around $5 billion in annual revenue, so even if it can access a fraction more of that $3.4 trillion TAM, then it’s easy to see where the growth potential and bullishness behind the share price lies.
The bear argument is that Airbnb can only ever generate the fees in the total vacation transaction and not the entire market opportunity. However, the bulls argue that even though that’s true, the fees could still potentially amount to a much larger pool of around $340 billion. That’s a 6700% gain on its current $5 billion revenue.
Therefore, if Airbnb can convince potential investors that it can indeed capture a bigger piece of the pie, then it’s reasonable to assume its share price will continue to rise.