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  1. #1
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    Smile whoes getting onboard on Air BnB ?

    Air BnB filing for a listing later on this year, should be an interesting listing, imo it will be priced more reasonable now than it would have been last year.

  2. #2
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    I'm going to have a look at it. They've pretty much got a monopoly in most countries but its by no means absolute, I think there'll be a lot of hype with the IPO and they'll probably message it in line with the COVID vaccines and subsequent lift in tourism etc.

  3. #3
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    will look at it about a week later - am sure the stags will all be out in force - if it doesnt happen for me there are plenty of other options for my money

  4. #4
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    WOW, yesterday it was reported at approx. US $68 but listed at $146.00 ran up to $164 but settled at $144.00ish where to from here , who knows !!

  5. #5
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    Quote Originally Posted by whatsup View Post
    WOW, yesterday it was reported at approx. US $68 but listed at $146.00 ran up to $164 but settled at $144.00ish where to from here , who knows !!
    Extremely over valued. Who are the people buying it in the 146 to 165 range?

  6. #6
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    Forgive me father, for I have sinned. I bought the hype at ~US$145 and am down ~15%

    Summary of my pros/cons below:

    What I like:

    • As an upfront disclaimer, I’m focused on investing vs. trading. I'm thinking about ABNB as a long-term hold, like 10-15+ years (think Amazon), so I'm not too worried about Covid and if anything I think the pandemic has given people a greater appreciation of travel/holidays/experiences - i.e. there is a real and underlying growing market for travel/holidays/experiences outside of things like Covid. By the way, I realise referencing Amazon as a benchmark is asking for trouble, but Craigs sent out an interesting email on the 9th of December showing that if you'd invested $10k in Amazon at the IPO then that $10k would be worth c.$2.5m today. Why? Probably because they 'cornered the market', had a strong brand and were well supported/capitalized. Is AirBnb that much different? I think the main difference is that Amazon have much more diverse earnings stream and larger addressable market, but even 10% of that growth rate is still quite attractive
    • ABNB have a large addressable market - $1.5T apparently. With ~$5-6b of revenue in 2021, that would be less than 1% of their SAM (serviceable addressable market) of $1.5T. I’m always a bit cautious/sceptical around calculations of SAM and TAM, but it is hard to disagree that it is a large market and that ABNB is probably taking market share and growing the pie
    • A very strong brand - 91% of all traffic to ABNB is direct to their website or unpaid. 91% is pretty impressive and very powerful (again, Amazon?)
    • Prospectus risks - having had some experience writing prospectuses, AirBnb's comments read more like standard boiler-plate disclosures. It is to be expected that their growth will slow by virtue of the law of large numbers, but none of the sub-points highlighted under risk section particularly worry me. For those actually interested in this post, best you read the risks section of the prospectus rather than me regurgitating them here. The two things that worry me most are (1) the unknown – what blows ABNB up? And (2) I’ve overpaid and hence my returns will be moderated to the point where this isn’t the best use of my capital in a relative sense.
    • Competition - look, it's not something I know enough about to be confident, but I think that is par for the course with tech companies. Who knows what Joe in Petone, Peter in Mumbai and Muhammed in Miami are doing in their mothers' garages but AirBnb do appear to have built their brand fast and turned their company name from a noun to a verb. Nobody has ever said "I'm Hiltoning it this weekend"… well maybe Paris does, but hardly a relatable reference point. I do think they'll face some competition around the edges (say, premium travel options, business, other) but the capital raised should help them invest to cement their position.
    • Their growth is relatively cheap - no need to fund large buildings and fit-outs/rent. I think they also have an opportunity to broaden their experiences offer and become a portal for experiences outside of accommodation... i.e. restaurant bookings, tours, etc.
    • Costs – without a huge amount of fixed overheads, the business does (and has shown that) it has the ability to moderate its cost base during periods of reduced demand.
    • Aging population and the rise of the tech-savvy – richer, old people are going to do what they've always done and book hotels, but the next generations are savvy and familiar with AirBnb's offer and concept. AirBnb are swimming with the tide here. The prospectus notes, “While Airbnb is popular across people of all ages, we are particularly strong with younger travellers: as of September 30, 2020, the majority of our guests who have ever made a booking on Airbnb were between the ages of 18 and 34.” As the boomers roll-off, there’s going to be plenty of millennials, gen-X, gen-Y and gen-Z rolling into ABNB’s market. Only other comment I’d make here, is that those within the newer demographics are fickle and tend to hop on the latest bandwagon as it emerges. I guess the question I ask myself here is, what could that new bandwagon be? And, if I knew the answer to that I wouldn’t be writing this post! I am really struggling to see what could disintermediate or dissolve ABNB’s relevance, but the limitations of my creativity are a serious handicap here… maybe in time we’ll wake up, plug an IV in to get fed an optimal dose of nutrients, sit in a machine that moves our muscles and wear a VR helmet that connects us with everything. Sounds horrible to me… but in saying that, I didn’t like the sound of Instagram much either.
    • Data - pretty cliché observation, but there's got to be value in their data and ways to monetise it. At the current valuation, any upside is probably already captured, so I haven’t attached a meaningful weighting to this.
    • Heavily weighted towards leisure travel, which is unlikely to be disintermediated by Zoom etc.
    • As a user – I have liked it. I have, and will, continue to use it over anything else when travelling internationally.


    What I’m unsure about:

    • The price I paid... and the fact that this IPO is effectively a massive transfer of wealth from existing shareholders who have funded the business to date (and taken real risk), to well-connected pigs that dine regularly at the trough with AirBnB's investment bankers… in saying that, the existing, pre-IPO weighted average share price was $6.77, so not much for them to complain about
    • Tied to the above, valuation – NB: high probability I may have mucked up some numbers. When there’s so many zeroes floating around it’s hard to keep track. At today’s market cap of around $75b + $1b of debt the EV is around $76b. Assuming forecast revenue next year of around $5-6b, that’s a forward revenue multiple of 15x. Eye-watering, but not entirely ridiculous in a relative sense in the current market (not to be construed as a view that current market pricing is rational/reasonable). Assuming ABNB could, say, get to 5% market share of their SAM of $1.5T, this would equate to roughly $75b in revenue, or 1x today’s valuation. Rough numbers, but Amazon trades today at around 5-6x revenue. Time is of the essence here, but let’s say it takes ABNB 15 years to get to 5% market share and $75b revenue and trades at ~5x revenue. That’d be a 400% return over 15 years. The math being:
      • $75b EV today on $5b of revenue = 15x multiple
      • $5b of revenue today grows at ~20% p.a. over the next 15 years to $75b in revenue (for reference this is roughly equivalent to Boeing or Sony today - https://fortune.com/global500/2020/search/)
      • At $75b of revenue in 15 years it trades at 5x revenue (a leap of faith), so an EV of $375b
      • Annualised return (assuming no dividends, which are unlikely anyway) is only a 10-12%
      • This is somewhat scary as 20% revenue growth isn’t straight-forward and a 5x revenue multiple and 15 years may also be generous
      • I guess this shows how important entry price is and why this is my biggest concern and why selling out and rebuying if it goes down and/or DCA down are going to be so important
      • By the way, quite aware that this analysis is useful now in hindsight – but I probably wouldn’t have done it had I not invested. So, question I have is whether it’s better to sell and take my loss or go long… current sense is the former

    • Competition - I think ABNB is a trusted global brand, but is at risk from regional competitors. What do I mean by this… as a user, when I travel overseas I’m going to use ABNB because I know it, but domestically I’ll look at bookabach, TradeMe etc before booking. So I think you have to moderate ABNB’s addressable market for regional/domestic competitors. It’s probably not going to blow ABNB up, but it could eat away at their domestic travel growth and market share.
    • Growth strategy – for a company raising the amount of money it did, the growth strategy in the prospectus was pretty light and wishy-washy
    • Slowing revenue growth - I don't like the fact it's slowing, but it’s still ~30%. In saying that, hard to see it growing consistently at 30%+ over the next 10+ years given y-o-y revenue growth to 2019 was ‘only’ 30%
    • Business travel risk from increased usage of Zoom etc.
    • Regulation – it’s a bit of catch all but I do worry that the business’ cost base expands with highly paid lawyers to manage the obligations within multiple jurisdictions
    • More minor risks, but I’ll throw them out there for completeness:
    • One-off bad hosting experiences that create apprehensive potential hosts - you know the ones which hit the headlines where the poor host is standing outside watching Jock and his mates punch holes in the walls. A minor risk in the scheme of things, but a flurry of ****ty news stories may turn people off from becoming hosts.
    • I think there is a small risk that hosts try to disintermediate AirBnb and go direct or contract directly with repeat customers, whereby AirBnb don't get a cut - i.e. I went to 69 Knob Ave in Remuera last time, we had a good experience, I'll just contact Mrs. Knobette direct, but I think this is a very small risk and more domestic


    So, where am I at?

    • At the moment I’m probably hoping – and that isn’t a good investment strategy
    • The rough valuation numbers above don’t fill me with a heap of confidence (I probably wouldn’t have done them had I not invested, so a lesson nonetheless) – I think an ABNB investor can/will make better than average returns, but assuming returns are 15-20% p.a. on a good day, they don’t really feel fair relative to the risk (still not bad, just not on a risk-adjusted basis). I think the only caveat/get-out-of-jail is that market pricing continues to go further away from fundamentals than it already is. Again, seems hopeful, but I’ve been proven wrong over the last 10 years and can’t see anything changing that in the near-term… but I guess that’s the point… it’s what you don’t see that undoes an investment, rather than what you can reasonably predict
    • I haven’t bet the house (and thankfully so) – so I guess I’m still willing to gamble my $ on:
      • Covid/vaccine recovery pushing the share price up;
      • Higher/faster growth than expected; and/or
      • Higher multiples;

    • I don’t think I’ll lose all my capital on this, but I’ll probably pop it in the bottom draw where I keep my more speculative investments and forget about it for a while (much like I’ve done with PEB, which has served me ok, albeit with plenty of dilution along the way)


    Looking forward to others’ views. Where are you at?

  7. #7
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    Only this very little observation. Two people . One is totally over Air BnB and Booking .com(0wned by AirBnB) and now happily rents out his spare space full time tenant. The time and hassle of dealing with AirBnb is joy to be without(for the accommodation provider).The other has given up using any booking outfit and happily rents out their bach word of mouth.Ive heard other stories like this.Would this make any difference to this Giant Air BnB? Down the track maybe and if some are unhappy with Air BnB etc growing competition cant be far behind.

  8. #8
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    New Zealand.
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    Default

    Has regained its listing price and some.

  9. #9
    Member
    Join Date
    Apr 2020
    Posts
    76

    Default

    Quote Originally Posted by Sir Ten View Post
    Forgive me father, for I have sinned. I bought the hype at ~US$145 and am down ~15%

    Summary of my pros/cons below:

    What I like:

    • As an upfront disclaimer, I’m focused on investing vs. trading. I'm thinking about ABNB as a long-term hold, like 10-15+ years (think Amazon), so I'm not too worried about Covid and if anything I think the pandemic has given people a greater appreciation of travel/holidays/experiences - i.e. there is a real and underlying growing market for travel/holidays/experiences outside of things like Covid. By the way, I realise referencing Amazon as a benchmark is asking for trouble, but Craigs sent out an interesting email on the 9th of December showing that if you'd invested $10k in Amazon at the IPO then that $10k would be worth c.$2.5m today. Why? Probably because they 'cornered the market', had a strong brand and were well supported/capitalized. Is AirBnb that much different? I think the main difference is that Amazon have much more diverse earnings stream and larger addressable market, but even 10% of that growth rate is still quite attractive
    • ABNB have a large addressable market - $1.5T apparently. With ~$5-6b of revenue in 2021, that would be less than 1% of their SAM (serviceable addressable market) of $1.5T. I’m always a bit cautious/sceptical around calculations of SAM and TAM, but it is hard to disagree that it is a large market and that ABNB is probably taking market share and growing the pie
    • A very strong brand - 91% of all traffic to ABNB is direct to their website or unpaid. 91% is pretty impressive and very powerful (again, Amazon?)
    • Prospectus risks - having had some experience writing prospectuses, AirBnb's comments read more like standard boiler-plate disclosures. It is to be expected that their growth will slow by virtue of the law of large numbers, but none of the sub-points highlighted under risk section particularly worry me. For those actually interested in this post, best you read the risks section of the prospectus rather than me regurgitating them here. The two things that worry me most are (1) the unknown – what blows ABNB up? And (2) I’ve overpaid and hence my returns will be moderated to the point where this isn’t the best use of my capital in a relative sense.
    • Competition - look, it's not something I know enough about to be confident, but I think that is par for the course with tech companies. Who knows what Joe in Petone, Peter in Mumbai and Muhammed in Miami are doing in their mothers' garages but AirBnb do appear to have built their brand fast and turned their company name from a noun to a verb. Nobody has ever said "I'm Hiltoning it this weekend"… well maybe Paris does, but hardly a relatable reference point. I do think they'll face some competition around the edges (say, premium travel options, business, other) but the capital raised should help them invest to cement their position.
    • Their growth is relatively cheap - no need to fund large buildings and fit-outs/rent. I think they also have an opportunity to broaden their experiences offer and become a portal for experiences outside of accommodation... i.e. restaurant bookings, tours, etc.
    • Costs – without a huge amount of fixed overheads, the business does (and has shown that) it has the ability to moderate its cost base during periods of reduced demand.
    • Aging population and the rise of the tech-savvy – richer, old people are going to do what they've always done and book hotels, but the next generations are savvy and familiar with AirBnb's offer and concept. AirBnb are swimming with the tide here. The prospectus notes, “While Airbnb is popular across people of all ages, we are particularly strong with younger travellers: as of September 30, 2020, the majority of our guests who have ever made a booking on Airbnb were between the ages of 18 and 34.” As the boomers roll-off, there’s going to be plenty of millennials, gen-X, gen-Y and gen-Z rolling into ABNB’s market. Only other comment I’d make here, is that those within the newer demographics are fickle and tend to hop on the latest bandwagon as it emerges. I guess the question I ask myself here is, what could that new bandwagon be? And, if I knew the answer to that I wouldn’t be writing this post! I am really struggling to see what could disintermediate or dissolve ABNB’s relevance, but the limitations of my creativity are a serious handicap here… maybe in time we’ll wake up, plug an IV in to get fed an optimal dose of nutrients, sit in a machine that moves our muscles and wear a VR helmet that connects us with everything. Sounds horrible to me… but in saying that, I didn’t like the sound of Instagram much either.
    • Data - pretty cliché observation, but there's got to be value in their data and ways to monetise it. At the current valuation, any upside is probably already captured, so I haven’t attached a meaningful weighting to this.
    • Heavily weighted towards leisure travel, which is unlikely to be disintermediated by Zoom etc.
    • As a user – I have liked it. I have, and will, continue to use it over anything else when travelling internationally.


    What I’m unsure about:

    • The price I paid... and the fact that this IPO is effectively a massive transfer of wealth from existing shareholders who have funded the business to date (and taken real risk), to well-connected pigs that dine regularly at the trough with AirBnB's investment bankers… in saying that, the existing, pre-IPO weighted average share price was $6.77, so not much for them to complain about
    • Tied to the above, valuation – NB: high probability I may have mucked up some numbers. When there’s so many zeroes floating around it’s hard to keep track. At today’s market cap of around $75b + $1b of debt the EV is around $76b. Assuming forecast revenue next year of around $5-6b, that’s a forward revenue multiple of 15x. Eye-watering, but not entirely ridiculous in a relative sense in the current market (not to be construed as a view that current market pricing is rational/reasonable). Assuming ABNB could, say, get to 5% market share of their SAM of $1.5T, this would equate to roughly $75b in revenue, or 1x today’s valuation. Rough numbers, but Amazon trades today at around 5-6x revenue. Time is of the essence here, but let’s say it takes ABNB 15 years to get to 5% market share and $75b revenue and trades at ~5x revenue. That’d be a 400% return over 15 years. The math being:
      • $75b EV today on $5b of revenue = 15x multiple
      • $5b of revenue today grows at ~20% p.a. over the next 15 years to $75b in revenue (for reference this is roughly equivalent to Boeing or Sony today - https://fortune.com/global500/2020/search/)
      • At $75b of revenue in 15 years it trades at 5x revenue (a leap of faith), so an EV of $375b
      • Annualised return (assuming no dividends, which are unlikely anyway) is only a 10-12%
      • This is somewhat scary as 20% revenue growth isn’t straight-forward and a 5x revenue multiple and 15 years may also be generous
      • I guess this shows how important entry price is and why this is my biggest concern and why selling out and rebuying if it goes down and/or DCA down are going to be so important
      • By the way, quite aware that this analysis is useful now in hindsight – but I probably wouldn’t have done it had I not invested. So, question I have is whether it’s better to sell and take my loss or go long… current sense is the former

    • Competition - I think ABNB is a trusted global brand, but is at risk from regional competitors. What do I mean by this… as a user, when I travel overseas I’m going to use ABNB because I know it, but domestically I’ll look at bookabach, TradeMe etc before booking. So I think you have to moderate ABNB’s addressable market for regional/domestic competitors. It’s probably not going to blow ABNB up, but it could eat away at their domestic travel growth and market share.
    • Growth strategy – for a company raising the amount of money it did, the growth strategy in the prospectus was pretty light and wishy-washy
    • Slowing revenue growth - I don't like the fact it's slowing, but it’s still ~30%. In saying that, hard to see it growing consistently at 30%+ over the next 10+ years given y-o-y revenue growth to 2019 was ‘only’ 30%
    • Business travel risk from increased usage of Zoom etc.
    • Regulation – it’s a bit of catch all but I do worry that the business’ cost base expands with highly paid lawyers to manage the obligations within multiple jurisdictions
    • More minor risks, but I’ll throw them out there for completeness:
    • One-off bad hosting experiences that create apprehensive potential hosts - you know the ones which hit the headlines where the poor host is standing outside watching Jock and his mates punch holes in the walls. A minor risk in the scheme of things, but a flurry of ****ty news stories may turn people off from becoming hosts.
    • I think there is a small risk that hosts try to disintermediate AirBnb and go direct or contract directly with repeat customers, whereby AirBnb don't get a cut - i.e. I went to 69 Knob Ave in Remuera last time, we had a good experience, I'll just contact Mrs. Knobette direct, but I think this is a very small risk and more domestic


    So, where am I at?

    • At the moment I’m probably hoping – and that isn’t a good investment strategy
    • The rough valuation numbers above don’t fill me with a heap of confidence (I probably wouldn’t have done them had I not invested, so a lesson nonetheless) – I think an ABNB investor can/will make better than average returns, but assuming returns are 15-20% p.a. on a good day, they don’t really feel fair relative to the risk (still not bad, just not on a risk-adjusted basis). I think the only caveat/get-out-of-jail is that market pricing continues to go further away from fundamentals than it already is. Again, seems hopeful, but I’ve been proven wrong over the last 10 years and can’t see anything changing that in the near-term… but I guess that’s the point… it’s what you don’t see that undoes an investment, rather than what you can reasonably predict
    • I haven’t bet the house (and thankfully so) – so I guess I’m still willing to gamble my $ on:
      • Covid/vaccine recovery pushing the share price up;
      • Higher/faster growth than expected; and/or
      • Higher multiples;

    • I don’t think I’ll lose all my capital on this, but I’ll probably pop it in the bottom draw where I keep my more speculative investments and forget about it for a while (much like I’ve done with PEB, which has served me ok, albeit with plenty of dilution along the way)


    Looking forward to others’ views. Where are you at?
    As expected, some of my numbers were out.

    In the above I calculated ABNB's market share based on its revenue, however, it should be based on gross booking value (GBV) - i.e. ABNB's current market share of its SAM is around 2.5% ($38b GBV / $1.5T), not less than 1% ($5b revenue / $1.5T).

    Having played around with market growth, market share, revenue as a % of GBV and exit revenue multiple assumptions I'm struggling to see this delivering a fair risk-adjusted return over the next 5-10 years even under my most optimistic assumptions.

    Air bed 'n breakfast.... more like Air bye 'n not buy

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