Online holiday rental marketplace AirBnB (NASDAQ: ABNB) was one of the most hotly anticipated stock market listings in recent times. As such, it’s perhaps no surprise that the share price more than doubled from $60 on the first day of trading in the US market earlier this month. At one point, it hit a high of $165!
Since then, some volatility has set in. On Tuesday, AirBnB stock was down to almost $120. Yesterday, it was trading near $140.
Should I be considering the company for my ISA or steering well clear? Let’s start with some positives.
Why I like AirBnB stock
According to its website, AirBnB has 5.6 million active listings in 100,000 cities worldwide. This clearly gives it far greater geographical diversification than even the most established global hotel firms.
Then there’s the variety on offer. According to its website, AirBnB “offers 90,000 cabins, 40,000 farms, 24,000 tiny homes, 5,600 boats, 3,500 castles, 2,800 yurts, 2,600 treehouses, 1,600 private islands, 300 lighthouses, and 140 igloos“. Companies that have something for everyone tend to remain popular.
And then there’s the brand itself. In my experience, the question “Did you AirBnB it?” is quickly becoming the travel equivalent of “Did you Google it?“. And we all know what’s happened to parent company Alphabet‘s valuation.
On a purely anecdotal basis, I’ve also found the whole process of booking a place to stay on weekend city breaks easy, convenient, and strangely quite fun in itself.
Given the above, you might wonder why I haven’t bought the stock already.
Reasons to be wary
My first reason relates to valuation. For all the excitement that its IPO caused, AirBnB is still massively loss-making and likely to remain so for some time. With a current market cap of over $80bn, this simply can’t be ignored.
Tellingly, at least some analysts have already turned bearish on the company. Equity research firm Gordon Haskett believes AirBnB stock will likely underperform after such a strong start. I’m confident it won’t be the last.
Aside from the valuation, the fact that AirBnB is just one of the host of companies coming to market recently is worrying. A flurry of IPOs suggests founders believe market conditions won’t get much better.
Another, perhaps inevitable reason why I’m hesitating to buy is due to the uncertainty caused by the pandemic.
While the emergence of effective vaccines has been glorious news, it will still take a while before we can all remove our face masks. Moreover, many people, although desperate for a holiday, may still feel initially safer in hotels with strict hygiene rules. The psychological impact of the pandemic may persist for longer than we think.
On top of this, I can’t discount the possibility of greater regulation on holiday rentals.
As a Foolish investor, I take a long term approach. My philosophy is simple: buy right and hold. I leave the risky stuff to traders. Right now, I’m placing AirBnB stock in the latter category.
A wobbly share price doesn’t make it a bad investment, of course. Anyone who remembers Facebook‘s 2012 IPO will know that it plunged in value shortly afterward. These days, it’s one of the biggest companies around!
Even so, I’m prepared to be patient. The time to buy will be when expectations are reset back to vaguely sensible levels.
In my view, AirBnB needs to come back down to earth.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Alphabet (C shares) and Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.