Airbnb, the San Francisco, California-based online platform that connects homeowners who want to rent out their spaces to customers looking for accomodations, recently raised $3.5 billion in its initial public offering (IPO), valuing the company at more than $100 billion.
The IPO was one of the biggest in 2020 in terms of capital raised for a company, and it highlights the impact of a new and growing sector of the economy. (Other big IPOs this year include Doordash and Snowflake, according to reports.)
Airbnb is part of the sharing economy, a business model that allows people to share and profit from resources they own, using community-based, peer-to-peer computer platforms. Such businesses are a relatively new development, becoming popular and easily accessible only in the last decade with the rise of smartphone apps and more distributed workforces and computing systems.
Such companies have also begun to upend entire industries. In Airbnb’s case, it’s the travel, hotel and lodging industry. But think of ride-share companies Uber and Lyft when it comes to transportation, or the handyman service TaskRabbit, even the crowdfunding site GoFundMe. These are all examples of how computer platforms have transformed businesses, enable more people to participate in the economy by sharing the resources they currently own.
Here’s a bit more insight about Airbnb, according to research from venture capital firm Goodwater.*
- Airbnb operates in 100,000 cities, in more than 220 countries and regions around the world.
- Its accommodations listings rivals those of Marriott in the largest urban centers, where the hotel chain has 1,000 listings in 1,000 cities.
- Airbnb has less geographical concentration than major hotel chains, where listings in the top 25 cities make up 45% of U.S. hotel chain revenue.
Although the pandemic hit Airbnb in the first two quarters of 2020, with layoffs of nearly 2,000 workers, and the company’s gross bookings falling into negative territory in the first months of the economic shutdown, it may be better prepared than traditional hotels to weather the pullback in consumer travel for the following reasons, according to Goodwater:
- Consumers have generally been taking more trips closer to home, and something Airbnb may be better able to take advantage of than larger hotel chains, with its accommodations in more far-flung locations.
- Airbnb has made consistent gains in the $5 trillion dollar travel and lodging industry for the last ten years.
- It has one of the strongest net dollar retention rates in its industry, meaning its revenues can continue growing from existing customers.
While Airbnb must still compete directly with other fast-growing accommodation sharing companies such as VRBO, it must also compete with much larger competitors including traditional players such as Best Western, Hilton, and Marriott.
You can find out more about Airbnb here.
More About IPOs
Following an IPO, a new stock can be subject to significant increases or decreases in market price. That’s known as volatility. Stock volatility can be particularly high in the first few months following an IPO and as a result, so can the potential for short-term losses. If you’re in this stock for the long haul though, it could be an opportunity for dollar cost averaging.
Oftentimes, fluctuations in price are due to the expiration of something called a lockup period—this is when company insiders, such as employees, sign an agreement that prohibits them from selling shares for a specified period of time.
When lockup periods expire, insiders tend to sell their stock in order to realize profit, sometimes causing the stock price to fall, or experience large changes in price in the process.
Remember the Stash Way—invest for the long-term, invest regularly, and don’t put all of your eggs in one basket.