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Airbnb’s Public Offering: What You Need To Know

Examining what we know about Airbnb's IPO from my Oct. 28 Daily Read.
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Correction to a mistake I made in this morning’s newsletter:

Regarding Airbnb’s IPO, I had accidentally estimated a gross profit number using their quarterly revenue of $1.1 billion instead of an annualized $4.4 billion. If we instead use $4.4 billion in Airbnb revenue and assume a 75% gross profit margin, that would result in a $3.3 billion in gross profit, should they recover fully in 2021.

If Airbnb stock trades at a $30-$40 billion valuation during their first day of trading, that would imply a 9.5x to 12x “recovered” gross profit multiple, which is a discount to $SPOT and $NFLX. This seems pretty attractive, actually, because I believe in their business and growth long-term, although with the caveat that a hospitality marketplace is probably a weaker business model than music or video subscriptions.

After correcting for the mistake, if we can get in at a $30-$40 billion price, Airbnb stock looks to be pretty interesting as a potential investment.

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We got some more details about Airbnb’s IPO.

Airbnb plans on raising $3 billion in its IPO in December, valuing the company at more than $30 billion. Additionally, Airbnb is enacting a 2-for-1 stock split for privately held shares ahead of the IPO. This would lower the price per share to a more-accessible price in the public markets.

We don’t have their financials yet, since they’ve filed confidentially with the SEC, but we know Airbnb’s saw revenue grow 32% to $1.1 billion in the fourth quarter of 2019 on the back of marketing spend. Through the pandemic, it’s seen a 70% decline in bookings in May but recovered to a 30% decline in June compared to the same months last year. In July, we also know that customers booked more than 1 million nights in a single day for the first time since March 3. 

This thing will probably pop when it IPO’s. Silver Lake is targeting a valuation for Airbnb of $40 billion to $50 billion to hit its one-year return target. 

If you assume they keep growing at 30% and carry 80% gross margins, a $30 billion valuation would equate to 26x forward gross profit. 

In general, for Airbnb, I’d say you’re paying up for the name brand, but fundamentally it’s still a cyclical, consumer-oriented tech company, more akin to $SPOT or $NFLX. $SPOT and $NFLX have 27% lower growth rates than 30%, and $SPOT is trading 35% cheaper and $NFLX is trading at 27% than our guessed valuation. 

At 25x forward gross profit, the B2B plays are probably stronger. $TEAM, $ASAN, and $DOCU have similar growth profiles and have stronger moats to their businesses. 

I’m still undecided on this one, given our lack of information, but I hope that helps you contextualize how attractive Airbnb’s IPO is looking compared to your options today. 

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