By Judah Esses
As one of the most volatile years in the market comes to a close, it is being capped off by one of the biggest IPOs ever. Through disruptive innovation, Airbnb, a home-sharing giant, has broken into and became a leader in the hospitality and lodging industry. After many years of talking about a potential IPO, this past Thursday, Airbnb finally took their shares public. The shares opened on the Nasdaq at $146 per share, more than double its $68 IPO price and valuing it at more than $100 billion. With this valuation, Airbnb is now already worth more than Marriott, Hilton, and Hyatt combined. This hot debut comes despite the damage to its business from the pandemic, which forced it to lay off staff and to raise an emergency financing round to avoid bankruptcy earlier this year. The tide shifted when Chief Executive Brian Chesky started noticing that despite the drastic effects of COVID-19, there was money to be made in what looked like a dying market.
Although big cities have usually been Airbnb’s strength, the company shifted its focus to local stays, where they saw an upwards trend in bookings. The management team acted hastily, redesigning their website and algorithms to be able to target local areas. By doing this, Airbnb saw their booking rates return near pre-pandemic levels in July. More than half of these bookings came from within 300 miles away, a clear sign their new strategy was effective. By capitalizing on this new strategy, Airbnb is now on track to report a third-quarter profit this year, which, to many, seemed impossible considering COVID-19 still having a real effect on businesses across the globe.
Airbnb’s jaw-dropping IPO follows many other IPOs in the past year, including Doordash (DASH), which took its shares public a day before Airbnb. They saw their share price rise a whopping 85% in its first day of trading. Just a few months ago, Snowflake (SNOW), a software and cloud company, took their shares public in the biggest software IPO ever. Last year, both Lyft (LYFT) and Uber (UBER) went public and also saw hefty multi-billion-dollar valuations. The IPO market is the hottest in years, and many expect this trend to continue into 2021.
However, not everyone is optimistic about Airbnb’s stock frenzy. Many believe that AirBnB, as well as many other similar companies that have seen massive growth during the pandemic, are going to see a correction. To many, the red hot IPO market looks very similar to the dot-com bubble in the early 2000s which led to billions of dollars lost in the market. Keith Fitz-Gerald, Fitz-Gerald Group chief investment officer, said in an interview with Yahoo Finance “This is Silicon Valley operating at its finest, creating excitement, creating froth, creating FOMO, and unfortunately, creating billionaires for the early investors and founders, not necessarily investors who think they’re getting a bargain right now. In fact, I’m very worried that … shares retreat sharply.” Jim Cramer, in his show “Mad Money” on CNBC called IPO pricing “broken” and stated that the price action reminded him of the dot-com boom in 1999 when there was a very similar interest in tech companies from retail investors.
Airbnb is a fantastic startup company, and because of its top of mind brand image, it has gained great interest from investors. Additionally, millennials make up more than 50% of their users. By reevaluating their strategy and adjusting to new trends, Airbnb turned a crisis into an opportunity and is back on track to making a profit. However, it is hard to tell how deserved this lofty 100 billion dollar valuation is. With the IPO market booming like it’s 1999, many are skeptical about the future, especially considering the current state of the U.S. economy. Nonetheless, it is truly remarkable how far Airbnb has come despite it being on the brink of bankruptcy just a few months ago.