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Another hot tech stock has listed and true to form, the value of Airbnb has shocked doyens of the share market who just can’t see how people are paying $150 for a stock that was supposed to be $68 on debut! And the question is: can this be another stock you have to be on, like Tesla, Amazon, Apple, Netflix and our local Afterpay?
My friends at Nabtrade say younger and ‘tech-loving’ older investors have gone wild on tech stocks this year. And Tesla is the favourite for Aussies chasing US stocks. But given Airbnb is becoming the product or service of choice for a young and even older group of holidaymakers, it could be another listed company that defies old-fashioned valuations.
Out of the blocks on the Nasdaq exchange on Times Square, New York, and the share price sprinted to $152.
The $68 price tag was smashed, with $146 the opening price before it saw $162 but it finally closed at $144.71.
Based on $146, it valued the ‘book now holiday later with amateurs in hospitality’ business at $87 billion. This first day’s trade and valuation on the stock market says it’s more valuable than some of the most well-known professional businesses in hotels and travel services. “That puts Airbnb past the market cap of travel giant Booking, which has a valuation of more than $86 billion. Competitor Expedia has a market cap of more than $18 billion,” CNBC reports. “Its market cap far surpasses hotel chains as well, such as Marriott and Hilton, which hold market caps of more than $42 billion and $29 billion, respectively. Delta Airlines has a market value of about $30 billion.”
But the question is: should you get on this stock and hope it can be an Amazon or Tesla of the future? The chart below shows what Amazon believers have enjoyed because they were believers, despite the fact that Amazon was smashed by the dotcom bust in the early 2000s.
I recall a Jeff Bezos interview where he reflected on the stock market collapse, or tech-wreck as it’s sometimes called. He said his company’s share price slumped from $100 to $6 virtually overnight, but the value of what he sold (books, CDs and videos in those days) had hardly changed at all.
This tells you that you have to be careful of the valuations that a stock market gives to companies. They can be excessive but they also can wildly underestimate the future success, and therefore the potential value, of a business.
Interestingly, this nice market reception for Airbnb comes after the Coronavirus has been terrible for business. In March, when the virus and the global economy was virtually shut down, it lost 80% of its business!
Last quarter its revenue dropped 19% to $US1.34 billion, with America and Europe doing hopelessly in fighting the virus, though it still produced a profit of $US219 million.
So do I think this is a good buy? This was a great buy at $68 if you had a chance to get initial allocations, but I wouldn’t be surprised to see this stock drop a tad if Wall Street has a few negative sessions before vaccines are dispensed and a stimulus package gets supported by Congress. But if I look long term, I reckon this will be a $300 plus stock.
Of course, individual company issues could prove me wrong and investing in companies on the stock market is a gamble. But because this business has such good business systems and is loved by its customers, I suspect it will be a stellar performer.
From an Australian investor perspective, I only worry about the rising dollar, which could eat into any gains.
In summary, I don’t know what will happen in the short term to the share price of ABNB, but in the long term, it looks like a winner.