Buying into technology floats that have no near term prospects of making profits is one thing. But placing a valuation of as much as $US42 billion ($56 billion) on the COVID-ravaged Airbnb initial public offering says plenty about investor preparedness to view value in the post-pandemic world.
This week investors were asked to digest a 25 per cent upward repricing of the value of Airbnb shares in the lead up to its IPO despite COVID infection rates rising as most of the world (other than Australia) is being ravaged by second and third waves of the pandemic.
Airbnb is the ultimate hybrid. It sits at the intersection of the gig economy and the old economy given it transacts in leasing physical real estate.
As part of the “sharing economy” it’s been a classic disruptor but thanks to COVID its fortunes should mirror those of traditional travel stocks like airlines, which have been disrupted by the pandemic.
In many ways this places it in the perfect position. For more than a month stock markets have been repricing the clapped out COVID stocks in anticipation that a vaccine will revive their fortunes. In that sense investors are showing they are increasingly prepared to “see through” the COVID earnings fog.
But given Airbnb’s new economy and disrupter credentials it still fits nicely into the growth stock category.
And it’s worth noting that despite the resurgence in old-line stocks, that trade hasn’t been at the expense of growth stocks. The Nasdaq exchange that houses the IT and disruptor companies closed at a record high on Monday night in the US.
So it’s difficult to know what will be tested when the highly anticipated IPO which values the company at $US42 billion hits the market this week.
Fellow gig economy colleague DoorDash will also join the Nasdaq this week and it too repriced its valuation up over the past week.
Another potential starter in the December e-commerce IPO line up is US buy now, pay later contestant, Affirm. Unlike DoorDash and Affirm whose businesses are enhanced by the pandemic, Airbnb’s financial performance will struggle if countries impose new lockdown measures.
In an overarching sense the performance of the Airbnb float will test the risk appetite of the investing public particularly in the US. In raising the auction price of its shares (which will have been the result of institutional investor interest) Airbnb recognises that there is plenty of demand for the stock.
And unlike plenty of Silicon Valley public listings that have gone before it over the past 10 years, Airbnb looks keen to test the valuation boundaries and avoid the current owners leaving too much money on the table.
Airbnb was worth $US31 billion before the pandemic but based on some private share sales its valuation fell to $US18 billion during the early months of COVID.
During the first nine months of this calendar year the company went into financial austerity mode, cutting costs culling 1900 staff and refocusing on its core business. During that period its revenue fell from $US3.7 billion a year earlier to $US2.5 billion and its loss doubled to $US697 million.
But the prospectus shows clearly that the company has never made a profit in any year since its inception and has negative shareholders funds. In that respect Airbnb has the feel of a startup which, like many others in the gig economy, are valued with reference to revenue rather than earnings.
But in the most recent quarter there were signs that its revenue and profit had begun to turn around. The extent to which these green shoots can grow will depend on the course of the virus in its major US and European markets.
How the company will fare in the medium to long term will depend on whether COVID has structurally changed the marketplace for travel.
While it is difficult to guess what the world will look like in two years, Australia’s experience provides some evidence that in the absence of any immediate health threat, people are keen to resume holidays.
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Source: Thanks smh.com