Airbnb stock doubles on debut

Airbnb's listing has been one of the most highly anticipated of the year. Photo / Getty Images

Airbnb has capped a wild year with a smash hit market debut. The home rental pioneer's stock opened at US$146 on its first day of trading on the Nasdaq. This is more than twice the initial public offering price of US$68 a share and far above the original range of $44 to US$50 per share set by the company last week.

At US$146 per share, Airbnb's implied market capitalisation of US$101.6bn makes it more valuable than leading online travel website Booking.com. This is quite a feat considering Booking pulled in three times more revenue and made a hefty US$4.86bn in net profits last year, against Airbnb, which doubled its net losses to US$674m.

Airbnb brought in US$2.5bn in revenue in the first nine months of the year, down from $3.7bn a year earlier.

Travel trends are on Airbnb's side. The lengthy rollout of Covid-19 vaccines means in the short-term travel will continue to be marked by limited mobility. Persistent wariness over crowded hotels and planes will benefit home-rental websites such as Airbnb. So will the company's exposure to holidaymakers rather than to business travellers. Its geographical spread — none of its top 10 cities made up more than 2.5 per cent of revenues or 1.5 per cent of listings — is another plus.

Once people can travel freely, pent-up demand for trips could give the company a further boost. Just as well. To satisfy investors it will need growth. Lots of it. Yet even if Airbnb can return to its pre-pandemic revenue growth rate of about 30 per cent a year, it will take years to reach the size of Booking. The latter also has an ebitda margin of about 40 per cent. It has already arrived at the destination that Airbnb is travelling towards.

Airbnb's listing comes on the heels of the DoorDash listing. Photo / Getty Images

Frothy valuations in tech stocks are all the rage. Tesla's valuation topped $600bn this week — making it six times bigger than General Motors and Ford Motor combined. DoorDash, the lossmaking food delivery company, hit a market capitalisation of $60bn after the share price popped 85 per cent on its trading debut on Wednesday.

Compared with fellow newly listed stock DoorDash, Airbnb has a proven path to profitability so long as management continues to keep a lid on costs. Yet for Airbnb to justify its lofty valuation it will need more than fiscal discipline. It needs outlandish growth. The frenzied debut suggests that investors seeking a bargain should stay at home.

- Financial Times