Earlier last week, Mrs Budget and I took part in probably one of the hottest IPO in the recent history – Airbnb.
If you have not already heard, Airbnb went public at the price of $68 last Thursday. On the day of the trading, Airbnb traded up a whopping 120% before closing at $139.25, more than double its IPO price.
In terms of valuation, Airbnb closed at a valuation of $100B, higher than those of the four world’s largest hotel chains combined (Hyatt, Hilton, Marriott, Intercontinental).
I think you can simply do a simple google search of airbnb versus hotels and get a good idea of the growth story behind airbnb and why investors are bullish on airbnb:
- Airbnb’s model is way more scalable than hotels – they do not need to own the inventory
- Beyond just providing accommodation, airbnb is also rapidly expanding their service offerings to include experiences
- With a high user retention, the possibility of Airbnb introducing other product offerings are endless: think about ticketing, car rentals, insurance, tours, anything is possible.
As Mrs Budget and myself are both Airbnb users ourselves, we decided to take part in the IPO of Airbnb and to hold the shares long term.
Hence, what we did was to execute a small limit order at 10% above the indicated open price of the counter, and our broker manage to fill the order for us. We also read that most retail investors who did the same will be allocated the full order at a $146 filled price.
To be completely honest, the price which was filled was a bit too rich for our liking – at $146 filled price, it is already almost 3x the intended IPO valuation of the Airbnb team.
Mrs Budget and I did not have the time to quickly sell the shares for a profit when it hit a high of $165 (+13% of our entry) as we were already sleeping when the trading was happening. While we probably are one of the many stupid investors buying at the top, we were also planning to hold the shares for a long time frame, and this serves as a good first IPO experience for us.🙂
In the long run, we have every confidence that Airbnb will continue to grow and eventual hit new time highs.
With so much pent up travel demand, and if our thesis is that travel will eventually recover and grow, surely Airbnb will continue to grow and the fundamentals will eventually catch up with the valuation.
One thing we also really like about Airbnb is that, the founder is still running the business and that he has demonstrated and proven the ability to consistently grow the business year over year, until covid hit.
And COVID is probably the worst thing in the world that can happen to them, and if they can overcome and even thrive from COVID, there is probably very little thing that can stop their future growth.
As of writing, Airbnb’s price has retreated -11% from our filled price, and if price continue to drop a further 10-20%, we may average down on our holdings.
In the long run too, most technology stocks more often than not trades higher than their first closing price, and we look forward to continue owning this 5x – 10x stock, and we look forward to the recovery of travel.
Here’s the interview snippet by CEO Brian Chesky on the day of the IPO and he said this:
“CHESKY: Well, I mean, this year, one of the things we had to do is get really focused and we’ve gotten focused on our core host community that offers homes and experiences. And, you know, when the world is ready to travel again, we will be ready. And so, we are focused on making sure that our hosts are ready to welcome guests, when they’re ready to leave their houses and it’s safe to do so and so, I mean, we are ready regardless of what happens with this IPO. We are going to be ready.”