Airbnb – Irrational effervescence.

Asset sharing during a pandemic remains a bad idea.

• If Airbnb can go public at a level 66% higher than it raised money earlier this year, it is another clear sign that we are in another bubble similar to the Internet bubble 20 years ago.
• Airbnb has filed its initial paperwork to go public meaning that the S-1 should be available in November with a listing in December.
• This is a far cry from a company that was forced to raise money in April after the pandemic caused most of its business to grind to a halt.
• Its business has recovered somewhat but this is mainly due to urbanites seeking out rural boltholes to sit out the pandemic as well as a very slight recovery in travel.
• However, during a pandemic with a highly contagious pathogen sharing assets remains a very unwise business model.
• Uber is case in point.
• In Q2 2019 Uber’s revenues were 75% ride-hailing and 25% delivery and freight.
• In Q2 2020 this has shown a complete about-face with revenues down 30% YoY where ride-hailing makes up 41% and delivery and freight 59% of revenues.
• Uber is now a delivery company.
• Its asset sharing business that involves humans getting in other people’s cars is down 67% YoY with no real recovery in sight until a highly effective vaccine is widely available.
• Uber has been fortunate to have this business to fall back on but Airbnb, outside of a few urban escapees, does not.
• Furthermore, while people are willing to take precautions for a short period in other people’s vehicles, I can’t see this working when spending long periods in other people’s houses.
• Furthermore, for longer-term rentals, it is likely to be more cost-effective to go through the normal and established real estate industry.
• Hence, when the figures are published, the picture while better than it was back in April, is still likely to be a shadow of its former self.
• The valuation of Airbnb fell to $18bn from a high of $31bn when it raised money in April but somehow investors may be asked to pay-up as if there has been no pandemic.
• Furthermore, the level of uncertainty at the moment remains incredibly high as no one knows how long this is going to last or when an effective vaccine will be widely available.
• Hence, any forecasts put forward by Airbnb supporters to cement its valuation are going to be based on assumptions for which there is very little if any basis.
• Hence, the only thing supporting the valuation of $30bn will be the very high valuations that are being given to other members of the technology sector.
• This is yet another indicative sign of the irrationality that persists in the stock market today.
• The prospect of indefinite loose monetary policy and massive money printing has driven the technology sector to valuation levels we have not seen for 20 years.
• This means that investors are so desperate to get their hands on the shares of fast-growing technology companies that they will overlook unsustainable valuations and other negative factors such as a pandemic laying waste to a business model.
• Consequently, there is great uncertainty in Airbnb’s future which in normal circumstances would force a significant valuation discount.
• SoftBank must be kicking itself because if WeWork had listed in these market conditions, no one would have recognised the house of cards until it was too late.
• Caveat emptor.