It’s such a straightforward idea but it has taken Airbnb to turn it into a global going concern. Take your spare room, often unoccupied second property or even your main residence when you’re not there and let it out to paying guests for short stays (Miles Costello writes).
Yet the hype and excitement about the flotation of the US room-rental group makes it feel as though it’s a once-in-a-lifetime phenomenon.
The indicative price range for last week’s new issue on the Nasdaq was increased once; the final pricing was higher still and the shares more than doubled on the first day of trading.
Little surprise, perhaps, that the stock has faded a little in the harsh glare of the aftermarket. Tech market bubble, anyone?
Airbnb was founded in San Francisco in 2008 by three entrepreneurs, all still with the company. It handles short breaks on behalf of 5.6 million active listings in 100,000 cities in 220 countries; last year it dealt with nearly 327 million bookings worth almost $38 billion.
The company, which generates its revenues from fees charged to landlords and guests, has competitors aside from traditional hotels, such as Tripping.com and Flipkey, owned by Tripadvisor. However, these rivals tend to be search engines with different earnings streams and none are publicly listed companies.
Last week’s listing was Airbnb’s second attempt at achieving a quote, after the onset of coronavirus forced it to pull its initial effort. This doesn’t seem to have put investors off: the initial indicative price range was set at $44 to $50, increased to $56 to $60, with the final price of the stock struck last Thursday at $68. As a result, Airbnb raised $3.5 billion.
Despite shedding some of their value in recent days, shares in Airbnb — off $5.20, or 4 per cent, closing at $124.80 in New York — are still close to double their starting value and give the group a market worth of just under $77.5 billion.
The excitement is understandable. Airbnb makes it easy, and often cheap, to book stays at home or internationally, and it can provide a handy income that is subject to certain tax reliefs for landlords.
Nevertheless, the potential pitfalls for the stock market investor come thick and fast. Airbnb has made heavy pre-tax losses — largely as a result of its high operating costs and sales and marketing expenses — in all but one of the past five years.
This is despite its clearly rapid growth: in 2015, it handled 72.4 million bookings worth $8.1 billion, rising to 326.9 million last year, worth $37.96 billion.
Coronavirus has shown how easily its operations can be disrupted, with bookings by number over the nine months to the end of September dropping by 41.5 per cent and by value down by almost 39 per cent.
Yet even before the pandemic Airbnb’s revenue growth rate had started to slow, falling last year compared with the year before that. As the company spells out in 74 pages of risk factors to consider in its prospectus, growth rates might never be the same and a clean profit might never materialise.
Then there is the valuation, for a company with no earnings per share that has no plans to pay a dividend in the foreseeable future. It feels like back of the envelope stuff: Airbnb’s quote values it at 16 times last year’s revenues of $4.81 billion and 1,649 times 2018’s meagre profit before tax of $47 million.
The truth, of course, is that Airbnb’s value is based on its potential, not just to reduce costs and lift margins but also to win more market share of a global travel industry worth $8.9 trillion last year, according to the World Travel & Tourism Council. It feels too Herculean for Tempus.
ADVICE Avoid
WHY There is obviously huge potential in its market but the valuation smacks of ambition over substance
Everyman Media
There’s nothing worse than an unreliable secret agent (Callum Jones writes). The already-delayed release of the latest James Bond film self destructed in the spring, when Covid-19 forced producers to delay until last month. It provided hope for cinemas hammered by the pandemic, until it was delayed further. No mission will be accomplished before April.
As cinema chains worldwide battle short-term disruption, Disney is the latest production giant to lean ever further into streaming. Ten Star Wars series, ten Marvel series and fifteen Disney and Pixar feature films will arrive on Disney+, its digital platform, in the next few years.
Alex Scrimgeour is heading out of the frying pan and into the fire by taking over at Everyman Media, which owns several dozen premium cinemas. The former boss of Côte Brasserie left in October after its sale to Partners Group, a private markets investment manager, via a pre-pack administration.
Timing is everything. Mr Scrimgeour’s appointment as chief executive, starting in January, was announced hours before tighter restrictions in London forced the closure of cinemas in the capital, where Everyman has more screens than any in other city.
The Aim-listed chain, which now has only 11 outlets open for business, appointed advisers last month to help in negotiations with landlords over rent. It nonetheless sounds bullish. Paul Wise, executive chairman, speaks of “reinforcing and expanding” the business under Mr Scrimgeour’s leadership, following an appointment which “reinforces our optimism in life beyond Covid.”
Everyman’s pipeline of new outlets, while down from eleven to eight, remains intact. As a business, it’s betting on the attraction of quality, rather than any bottom line boost from quantity. Its cinemas have an average of just over three screens, with 117 screens across 35 sites.
Those in charge believe that their proposition of first class hospitality is enough to lure film fans even without new releases. Everyman’s cinema in Hampstead spent Tuesday night, its last for a while, showing Frozen, Batman Returns and, aptly, The Nightmare Before Christmas. Better dreams are likely to ensue.
ADVICE Buy
WHY Well positioned for recovery and expansion
