My Precise Buy Price for Airbnb’s IPO
We’ve fielded a lot of questions lately about the upcoming initial public offering (IPO) of Airbnb (which plans to list on the Nasdaq and trade under the symbol ABNB).
After doing some due diligence this past weekend, I’ve finally formulated an opinion on exactly how to approach the debut.
I shared my advice with War Room members earlier this morning.
But I’d also like to share this same advice with you here in Trade of the Day.
It’s a big opportunity, and here’s how I believe you should approach it…
Airbnb is an online marketplace for people who rent out their homes.
As of September 30, it had 7.4 million available listings, 5.6 million of which were considered “active.” Using the successful model of eBay and Facebook, Airbnb becomes more powerful the more people use its website.
Case in point, in the first nine months of 2020, 91% of all Airbnb’s traffic came through “direct or unpaid channels.” To me, that’s a major reason Airbnb will be such a winner.
In other words, here in this post-COVID-19 world, I believe Airbnb will represent a paradigm shift in how people travel and vacation.
Going into the IPO, Airbnb shares are expected to price around $50 per share, which would value it around seven times estimated 2021 sales of $4.3 billion.
Sure, that’s more than the three to four times sales major hotel plays like Marriott and Hilton are valued at – but those hotel chains represent the old-economy leaders.
Here in this post-COVID-19 world, I think having exposure to Airbnb is a smart idea – and paying seven times earnings seems reasonable to me.
Right now, Booking Holdings (Nasdaq: BKNG) – formerly Priceline – is valued at eight times earnings, so Airbnb’s valuation is most certainly justified.
That’s why I’d advocate owning some exposure on IPO day.
Action Plan: Buying anything on IPO day is always a little bit crazy, as the excitement of the IPO seems to take Wall Street by storm. But just to get a toe in the water before the ship sets sail, I’d recommend owning exposure to Airbnb anywhere between $60 and $70 per share. This represents a logical entry price to get you a “starter” position on IPO day. Go light because I’d ideally like to add more Airbnb shares on any pullbacks around $50 to $59.
P.S. As I was preparing this article, it was confirmed by The Wall Street Journal that the expected IPO price has increased to a range between $56 and $60. This tells you that the demand is growing – which I consider a positive signal.