Airbnb, Inc.

Airbnb, Inc. (NASDAQ: ABNB) offers accommodation services across the globe and is being operated by the company’s in-house platform. The company has more than 4 million hosts had 7.4 million available listings of homes and experiences, of which 5.6 million were active listings which includes private rooms, entire homes, luxury villas, treehouses, igloos, etc. available across more than 220 countries and regions.

Key Highlights:

• Listing on Nasdaq: The stock listed on NASDAQ on December 10, 2020, and closed at USD 144.71, soared 112.81% from its IPO price of USD 68 per share. At the IPO price, the valuation was estimated at ~USD 47 billion. In contrast, the last closing price, the valuation climbed near ~USD 86 Billion, which indicates a significantly higher investor’s interest in the stock.
• Use of IPO proceeds: The company would use the proceeds from IPO for general corporate purposes, including working capital, operating expenses, and capital expenditures. The capital expenditure includes expanding its operations across India, China, Latin America Southeast Asia etc., along with several smaller markets and remote places across the world. The company also intends to innovate its platform to improve the host and guest experience, which would attract new hosts and guests and drive organic growth from existing clients.
• Performance metrics: The company witnessed solid growth in the Quarterly Nights and Experiences Booked and quarterly Gross bookings value (GBV), which is impressive and indicates growing traction from travellers. However, during FY20, the Nights and Experiences Booked and GBV dipped due to negative impact from travel banned on account of COVID-19 pandemic. During the first 9MFY20, Nights and Experiences Booked decline ~41% to USD 146.9 million, while GVB stood at USD 18 billion, declined 39% on pcp.

Source: Company Reports

Financial Highlights for 9MFY20:

• For the 9MFY20 the company posted its top-line at USD 2.5 billion, lower than USD 3.69 billion, a year ago. The decline was primarily due to a 42% decrease in the number of check-ins related to Nights and Experiences Booked on the company’s platform due to the COVID-19 pandemic, partially offset by a 4% increase in GBV per Night and Experience Booked. 
• The company reported a higher loss from operations at USD 489.967 million, widened from USD 173.604 million, a year ago due to lower revenue, partially offset by lower total costs and expenses ( USD 3 billion versus USD 3.87 billion in pcp).
• Net loss stood at USD 696.865 million, significantly higher than USD 322.801 million, a year ago, due to a higher loss from operations, higher interest expense and increase in other expense.

9MFY20 Financial Highlights (Source: Company Reports)

Key Risks: The company’s business is highly dependent on the pace at which the travel industry normalizes. In case of any delays in implementation of COVID 19 vaccine, the business might continue with tepid traction, which would further dampen its GBV.

Stock Recommendation: During FY19, the company derived two-third of its revenue from listings outside of the United States. To combat the current downturn, the company has lowered its fixed costs and has reduced ~25% of its total workforce. The company witnessed a revival in domestic travel, as customers are choosing trips closer to home combined with higher staying period, which is encouraging. Meanwhile, the stock is trading at a significantly higher valuation, as compared to its peers. ABNB stock trades at an EV to Sales of 20.22x on next twelve months (NTM) basis, while the EV/Sales multiple of its peers are stated below.                           

(Source: Refinitiv, Thomson Reuters)

Further, the timing of the arrival and implementation of the COVID 19 vaccine is uncertain and hence the travel restrictions are likely to continue in the near future. We believe the stock has enough potential based on the company’s upcoming business prospects, but near-term outlook remains bumpy. Moreover, the company reported consecutive losses since FY17 and is funded through its equity component only, which remains a key concern. Therefore, considering the facts mentioned above and current valuations, we advise investors to keep a ‘Watch’ stance on the stock at the closing price of USD 144.71 on December 10, 2020.

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