Analysts were enthused about Airbnb’s long-term prospects, although largely cautious on its pricing, after the platform saw a strong start to trading last month.
One analyst saw Airbnb’s key strength as its lack of reliance on Google, with 91% of guests in the first three quarters of 2020 landing directly or through unpaid channels.
A note from Needham said: “Key upside drivers would be accelerating share gains in the US and Covid abating sooner than expected in 2021, in our view. Our primary downside concerns are Covid turning into an incremental multi-year headwind and/or stagnating traffic growth that would cause the company to invest more aggressively in customer acquisition, presumably through Google.”
At Credit Suisse, the bank wrote: ”Over the past decade, alternative accommodations as a share of total lodging have increased from ~6% to ~11% dollar share. This represents in our view an ongoing shift in consumer preference away from traditional to alternative lodging. We expect this substitution effect to accelerate further due to pandemic-driven changes in behaviour, with incremental consumers likely trying the category for the first time and choosing to stick after a positive experience.
"Currently, Airbnb charges the guest 12% and individual hosts 3% versus traditional operators levying the entirety of the fees on the property owner. We therefore see ample opportunity for the company to increase monetisation in the long term from: 1) payment processing fees - Airbnb as the merchant of record in the transaction bears the payment processing charges, which it can pass on to the hosts, and 2) sponsored listings - optionality to launch an advertising tool for hosts, similar to Amazon, eBay, and other marketplaces.”
The company’s share price was up 116% from the $68 IPO price, causing some analysts to be cautious about possible future growth, although Needham had a Buy rating and $200 target. Bank of America had a Neutral rating and $158 target.
Airbnb started trading at $146 per share, valuing the company at $87.2bn, more than double the market cap of Marriott International. https://www.hospitalityinsights.com/content/airbnb-debuts-at-146
Airbnb was planning to raise $3bn with the listing.
Last year Airbnb saw its valuation cut to $18bn after Silver Lake and Sixth Street Partners invested $1bn in the platform in a combination of debt and equity securities. Reports suggested that the company was paying 10% in interest plus Libor on the deal.
Shortly afterwards Airbnb announced a $1bn syndicated term loan from institutional investors,
Airbnb co-founder Brian Chesky said that the money meant rather than, rather that “merely hunkering down”, the company would “continue moving forward”.
It was thought that private equity firms Silver Lake, Apollo Global Management, Sixth Street Partners, Oaktree Capital Management and Owl Rock participated, with the loan priced at an interest rate of 750 basis points over the Libor benchmark.
Chesky said: “We know travel will return and rather than merely hunkering down, the support we have received will allow Airbnb to continue moving forward as we invest in our community. All of the actions we have taken over the last several weeks assure that Airbnb will emerge from the storm of the pandemic even stronger, regardless of how long the storm lasts.”
Insight: While the rest of us are wondering ‘where now’ for Airbnb, the analysts are forced to operate on a sticking-to-its-knitting basis and seeing much to enjoy. Specifically, that the platform can leverage its dominant position and start to jack up prices to bring in more fees.
A typical monopoly-style ruse (but now is not the time to think about the other Monopoly and whether investors would really move onto hotels after adding four homes in this environment or find a way to keep adding homes) and one which tends to drive greater competition after a certain period and irritate those who are forced to participate.
It also plays into the current suspicion around Airbnb - that Airbnb’s greatest competition is Airbnb. As with any large platform - the mind leaps to Facebook - it’s not so much a case of Too Big To Fail, but Too Big To Police All Its Users And Prevent Against Bad Actors. A recent interaction involving this hack saw the platform bringing other hosts in to act as intermediates, leaving questions over the role of Airbnb other than to bring in fees.
When all you have is the brand and nothing else, that brand must be protected above all else. Handily, Airbnb has come into some cash of late. Best spend it on tangible assets.