As a side note I want to say good morning to $17,000 Bitcoin! Here’s to a continued run to breaking new all-time highs and bring 10% of our portfolio some happiness.
The big news today is Airbnb’s IPO. I did a 1.5-hour Discounted Cash Flow (DCF) Valuation Live Stream on YouTube this morning, so please check that out if you’re interested in Airbnb’s business and IPO. I have made this Airbnb valuation model available for download for ROIC members.
In general, the business looks exactly like we would expect. It’s a high-growth online marketplace growing volumes and revenues at 30% per year, but losing about a quarter billion dollars per year. That said, after aggressive Covid-19 related cost cuts, Airbnb posted positive $501 million in EBITDA for Q3 2020, which shows they can truly become a profitable company.
Because it’s inherently levered towards the cyclical travel industry, it’s not as strong of a marketplace asset as, say a fintech one such as PayPal or Stripe, but it’s still a really great asset that I believe will continue to take market share from traditional hotel stock.
After this morning’s analysis, I believe that Airbnb stock looks like a strong buy as a growth stock if we can get in at anywhere close to a $30 billion IPO valuation, which is what the media is predicting. That would represent only an 8.0x forward Gross Profit multiple. My quick DCF estimations peg a fair valuation for the company at $50 billion, or about 13x forward gross profit. This also makes sense in the context of Booking Holdings ($BKNG) trading at an $85 billion valuation.
Therefore, my pre-IPO opinion for now is that it’s a great buy upon IPO, as long as it doesn’t pop 50% or more when it starts trading.