It has been a rollercoaster of a year for Airbnb (to say the least) — the company was valued at $31 billion coming into 2020, but that dropped to $18 billion in April as its revenue imploded due to Covid-19. The company was eyeing a highly anticipated IPO, then decided to hold off, but last week Airbnb confidentially filed for an initial public offering. The company is now in a “quiet period” while the SEC reviews the registration. 

Many analysts think it will be a big one.

Despite a tumultuous year, Airbnb could have a blockbuster IPO with valuation north of $30 billion given the current red hot stock market. The Information reported that analysts believe Airbnb can achieve 6 times projected 2022 revenue of $5 billion and get a higher multiple than Booking Holdings, its publicly traded competitor, which currently trade at 5 times future revenue.

Airbnb is the largest online marketplace for short-term stays in homes and apartments, while Booking is more dominant in hotels. Some analysts believe Airbnb merits an even higher multiple of seven times revenue, which would put the valuation in the ballpark of $35 billion. 

The Information

Airbnb has a strong case for a higher valuation given current travelers preference for vacation rentals over hotels and its strong brand equity.

Changing Traveler Preferences Favor Airbnb

The travel industry was turned upside down in early 2020 as governments across the world imposed restrictions and lockdowns that kept people in their homes. These restrictions are starting to lift, and people are looking for safe ways to get out of their houses. Many have been turning to Airbnb.

People started traveling again this summer but shifted their travel preferences. Instead of flying to their destinations, travelers have been traveling to locations within driving distance. Airbnb recognized this trend early.

Furthermore, travelers have shown that they don’t trust the safety and cleanliness of hotels during the pandemic. Many Airbnb hosts rent single-family houses or condo units that feel safer for many travelers. This puts companies like Airbnb and Vrbo at an advantage over traditional accommodation providers like hotels.

Not all is rosy, however — Airbnb has focused on building out its presence in urban areas. Many travelers are avoiding traveling to dense cities and are instead opting for socially-distant destinations like beaches and national parks. This could be the company’s biggest weakness, especially since Vrbo, one of the company’s largest competitors, focuses more exclusively on these kinds of socially-distant vacation destinations.

The Benefits of a Strong Brand

Airbnb has another major advantage over its competitors — its brand. Airbnb is a platform that offers an incredibly vast network of rentals across the world. People know the brand and turn to it when planning a vacation.

This platform has another benefit — direct traffic. When travelers want to book an Airbnb, they go to the company’s website or app directly. This allows Airbnb to spend less on online ads compared to Booking or Expedia who are dependent on traffic from Google.

While the old hands list on many, many platforms and fervently seek direct bookings, the greenhorns will go straight to the brand equity they know – Airbnb

Tom Caton – AirDNA via Phocuswire

Airbnb’s lower online ad spend is potentially offset by higher costs of expenses related to customer service and property damage claims compared to some of its online rivals.

Stock Market Momentum Can Carry Airbnb to the Top End of Valuation

While Airbnb has not determined the number of shares it will issue or the valuation, NYU Professor Aswath Damodaran shared some thoughts on Airbnb’s IPO in an interview with Bloomberg. He said that “the timing is right and [if] the momentum keeps going in this market, they should get the top end of their range.” He noted that companies are not valued on how the economy is doing but on what the market is doing.

Currently the market favors companies like Airbnb. “Investors have just wanted to be in names that are tech, asset light, like Airbnb and Booking,” said Doug Clinton, managing partner at Loup Ventures. “They want to be out of the other names,” like Delta or Marriott.

Professor Damodaran thinks Airbnb could get more than they could have gotten before the pandemic because its competitors, like Marriott and Hilton, will come out of this crisis more damaged than Airbnb.

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Categories: Deals