Airbnb valuation near $100bn after shares double initial price offering

Shares in Airbnb Inc. began trading on Thursday at $146 per share, 110% higher than an already inflated IPO offering price of $68.

Airbnb – an online vacation company responsible for 7.4 million home rental listings from roughly 4 million hosts globally – netted proceeds of $3.5bn from the IPO. The company’s share price closed at $144, meaning Airbnb is now valued at more than $100bn – four times the valuation of established online booking company Expedia.

The IPO arrived at the end of a strong bounce back in the third quarter of what has been a challenging year for the vacation rental company, with its success another indication of positive investor sentiment towards the IPO market at the moment and technology listings in particular.

Second blockbuster IPO in as many days

This was not the only headline offering last week, in fact, it is the second IPO to net more than $3bn proceeds in as many days.

On Wednesday 9 December, food-delivery company DoorDash began trading publicly and saw similar success. Shares in DoorDash opened at $182, 82% above its IPO target price, and remain at $175 at the time of writing.

The two IPOs take the total raised on U.S exchanges to over $140bn – not bad for a year in which the world has experienced one of the worst pandemics in history. In fact, the total raised from IPOs in 2020 is now the highest on record, shattering the previous record of $107bn set in 1999 during the dot-com bubble.

This number will yet grow further with video-gaming platform Roblox Corp. and parent company of online retailer Wish, ContextLogic Inc., also looking to take advantage of the lively IPO market by going public later this month.

Why has the IPO market been so hot this year?

Throughout the year, several companies have enjoyed success in the IPO market, but it has been fast-growing technology and software companies which have been most popular among investors.

Shares in software companies Palantir Technologies and Snowflake Inc. have surged since their IPO dates earlier this year, and whilst it remains to be seen if Airbnb will sustain its current valuation in 2021, the extraordinary success of the IPO suggests there is still plenty of demand among investors for these types of companies.

2020 has been a year like no other. With cyclical industries such as travel, retail and leisure being decimated by the pandemic, society has accelerated even more rapidly than expected towards the digital age. Stocks in technology companies have massively outperformed the rest of the market this year. The Nasdaq 100, a U.S stock market index weighted towards the technology sector, has grown roughly 40% this year to date. The S&P 500 has grown just 12% in the same period.

This has created huge demand for new technology companies in the market, and it is these companies which have been primarily responsible for the scale of IPO proceeds we have seen in 2020.

What’s the outlook like for Airbnb?

It goes without saying that Airbnb’s greatest challenge in the short-term is the pandemic. The Covid-19 pandemic has already lasted longer than many expected, and despite the roll out of vaccines in the New Year it is unlikely life will completely return to normal for some time yet.

The travel and leisure industries (which Airbnb considers itself a part of through the Experiences section of its business) have both been hit hard by social distancing constraints and travel restrictions.

In the first half of the year, Airbnb posted consecutive quarters of losses – $323m in the first-quarter and $576m in the second. The company rebounded somewhat in the third quarter, making a profit of $219m, after Airbnb CEO Brian Chesky took dramatic cost cutting measures and domestic travel increased.

Prior to the pandemic, the company was seen by many as one of the greatest disruptors in the travel sector – and if it’s IPO demonstrates anything it is that this opinion still holds amongst investors today.

Airbnb revenue grew by roughly $1bn each year from 2016 to 2019, and whilst the company’s revenues and bookings have seen an expected decline this year, the damage has been less severe for Airbnb than others in the industry such as Expedia and Booking.com.

The company’s management and investors alike will hope that Airbnb’s unique business model, which promises customers a more authentic holiday experience, will not only survive through the pandemic, but thrive in the years following.

The pandemic, among other issues such as possible city restrictions on short-term rentals, pose risks to investors in Airbnb. However, under the management of Brian Chesky, it seems likely Airbnb will steer past these issues and continue to grow into a major player in the travel industry in the future.