The way in which companies conduct business all around the world is all set to change. Driven by the onset of the COVID-19 pandemic, enterprises are investing heavily in digital transformation projects and have also looked at the stock exchanges to fund their growth story.
In 2020, 480 companies listed on the U.S. stock exchanges, which was 106% higher than the figure in 2019. Several of these IPOs have also crushed the broader market returns as investors have shown a huge risk appetite despite a sluggish macro environment.
IPOs provide investors with an opportunity to build early positions in growth companies that are likely to yield market beating returns. Here, we look at Airbnb (NYSE: ABNB), a stock that recently went public to see how it has performed and if it remains a solid long-term bet.
Airbnb stock went public at $68 per share
Airbnb IPO’ed on December 10, 2020, at a price of $68 per share. On the first day of trading it closed at $145 and is currently priced at $190. Airbnb was founded back in 2009 and has disrupted the hotel industry by offering short and long-term rentals.
It has an asset light model which means the company has to spend little on capital expenditure. Airbnb can in fact plough in profits to improve its existing platform, expand its suite of services as well as increase marketing spend to gain customers.
In 2019, Airbnb’s sales were up 32% year over year at $4.8 billion and gross bookings soared 29% to $29.4 billion. However, after the COVID-19 pandemic decimated the hospitality industry, the company saw a decline of 30% in top-line as it ended 2020 with $3.38 billion in sales.
In Q4, Airbnb reported sales of $859 million, significantly higher than Wall Street estimates of $748 million. However, the company lost a massive $3.9 billion in Q4 of 2020.
A perfect recovery stock?
While governments all around the world are just starting to roll-out vaccines, the travel and tourism industry is expected to benefit from pent-up demand in the upcoming months. According to a survey conducted by Airbnb, leisure travel is the activity that has been missed most by the U.S. populace amid the dreaded pandemic.
According to the CEO of Booking Holdings, Israel has already vaccinated over 50% of its population and bookings in the country are up by double-digits. These trends indicate Airbnb is well poised to take advantage of the travel boom that will drive revenue growth in the latter half of 2021 and should extend well into 2022.
The work-from-trend is also likely to benefit Airbnb as employees have officially decamped from commercial spaces. Several companies in the tech industry have already said employees can work from home on a permanent basis. Airbnb rightly expects several millennials to grab this opportunity and work from remote locales all around the world.
What next for Airbnb investors?
Wall Street expects Airbnb sales to grow by 38.7% to $4.7 billion in 2021 and by 35.5% to $6.35 billion in 2022. Comparatively, its losses are forecast to decline from $15.63 per share in 2020 to just $0.64 per share in 2022.
While still unprofitable, Airbnb is one of the top growth stocks to bet on for long-term investors. Its valued at a market cap of $114 billion which means its forward price to sales multiple is steep at 24.x.
However, Airbnb is a market leader in the home-sharing segment and part of a rapidly expanding market that is valued at over a trillion dollars. Over the years, Airbnb has successfully demonstrated its ability to scale and penetrate new regions. It has also added other business segments and should be on the radar of most growth investors.
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