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Airbnb IPO On December's Docket: Buy Or Pass?

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Airbnb is preparing to release its highly anticipated shares to the public markets before the year is up. The enterprise stumbled through the COVID-crisis, but it is preparing to soar in the rapidly digitalizing new normal

If I am able to purchase ABNB (its anticipated ticker) at the $30 billion target valuation or less, I will pull the trigger on opening day. This would represent 6.2 times price-to-2019 sales, a bargain for a business with extensive amounts of growth ahead of it. 

Despite not yet turning an annual profit, this is an opportunity to get in on the business's ground floor before its value goes parabolic when it hits profitability. This phenomenon is exemplified byTesla (TSLA - Free Report) , who has illustrated almost 500% returns in what is going to be its first profitable year.

Expect these shares to debut on the Nasdaq exchange in mid-December.

Recent Struggles

The pandemic began as a cash-hemorrhaging crisis for the online vacation rental pioneer. The business ramped up marketing and administrative expenses in 2019 in anticipation of a record 2020, but the COVID-induced economic coma threw a wrench in that forecast, leaving Airbnb stretched thin.

The red-hot start-up has only lost about $2 billion since it was incepted in 2008. Still, its costs were accelerating with CEO Brian Chesky slightly over-extending operations. The enterprise was forced to lay-off a quarter of its workforce and raise $1 billion in debt at 9%, which is an interest rate that reflects a business in distress.

The second half of 2020 is picking up steam as the business saw a big uptick and local stays. When combined with Chesky's cost-cutting measures, Airbnb was somehow able to pull off a profitable 3rd quarter for the business, maintaining its three-year profitability trend in this season.

The Potential Opportunity

This global pandemic has acclimatized society to rely on the ease & convenience of digital technology and avoid strangers at all costs. Airbnb provides travelers and lodgers with these unique qualities.

The economy is becoming more digitally incline every day as Millennials and Gen Z's take over as the dominating consuming generations. According to Grand View Research, as of 2019 over 71% of vacation rentals are booked offline, which is a massive opportunity for Airbnb, with Millennials and younger expected to make up 75% of all consumption by 2025.

Airbnb's total addressable market is enormous. The world spent $4.7 billion on travel in 2019, and I suspect that we will return to similar levels in 2021. The global lockdowns have people itching to get out and take a vacation.

Hotels may not be as attractive to travels for upcoming vacations as they will be forced to pass strangers in the halls or get in elevators with them, something I believe people will continue to be less comfortable with in the new normal. Airbnb's online platform and typically stranger free experience should see a significant tailwind in the years to come.

Final Thoughts

Even in a post-COVID world, humanity is going to be much more cautious for years to come. This pandemic has scarred humanity. Leveraging technology and social distancing are its two primary coping mechanisms. Things that society will continue to exercise for years to come.

Airbnb is poised to soar in the post-pandemic world. Airbnb has become synonymous with vacation rentals, just as Uber (UBER - Free Report) is synonymous with ridesharing. Both market disruptors will have dominant market positioning in the Roaring 20s. Getting on the ground floor of this innovation-driven enterprise out of the gates may represent a robust long-term opportunity.

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