Airbnb's IPO is reasonably valued but still has 3 risks investors should watch for, equities analyst says

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  • Airbnb is set to make its public-market debut this week, aiming for a valuation of between $26.4 billion and $29.8 billion. It is a reasonably valued IPO, according to David Trainer, New Constructs founder and CEO.
  • Unlike other recent IPOs, and several stocks where valuations are sky-high, Airbnb has a plausible path to profitability,” said Trainer in a recent note.
  • Trainer added however that investors should be cautious of risks to the company, including Airbnb’s exposure to state and local regulations that would restrict the business of home sharing.
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Airbnb is set to go public this week, with shares scheduled to begin trading on Thursday. The home-sharing company is aiming for a price range of $44-$55 apiece, which would value it between  $26.4 billion to $29.8 billion. David Trainer, New Constructs founder and CEO, says the IPO is reasonably valued.

“Unlike other recent IPOs, and several stocks where valuations are sky-high, Airbnb has a plausible path to profitability,” wrote Trainer in a recent note.

The equities analyst said that if Airbnb maintains its revenue growth similar to what is saw before the pandemic, while lowering its marketing expenses, it will be valued at around $28 billion, the midpoint of its IPO price range.

If the firm doubles down on cost efficiency, while sacrificing revenue growth, and were to achieve profitability on par with Booking Holdings, one of the most profitable travel firms, Airbnb could be worth $58.7 billion, he added. 

Trainer highlighted that Airbnb has the largest platform for room listings of many of its competitors, and it benefits from its scale. The more listings there are on the platform, the more consumers will look to Airbnb, which in turn will drive more property owners to host on the platform to reach the largest audience.

“With each new listing, it becomes easier, and theoretically cheaper, to attract users, and vice versa,” said Trainer.

He added that the company may further benefit from consumers who prefer staying in short-term rentals over hotels out of concern over the spread of the coronavirus.

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But the IPO is not without warning flags, said Trainer.

Airbnb is susceptible to local, state, and country regulations on the business of providing homes for short-term stays. Airbnb noted in its IPO filings that upcoming regulations in New York (2% of its revenue in 2019) could hurt revenue if hosts begin to leave Airbnb because they don’t want to comply with new regulations, the analyst said.

Trainer also said investors should be cautious of Airbnb’s financials, as neither management nor auditors have performed an evaluation of the firm’s internal control over financial reporting.  

Lastly, Trainer is suspicious that insiders may be trying to “dump shares” on retail investors. He said that “early investors and employees have been applying pressure on Airbnb’s CEO to go public this year, as they’re set to lose their stock options next year,” pointing to a report in the Wall Street Journal.

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