By Matein Khalid: Chief Investment Officer and Partner at Asas Capital
I have been a fan of Airbnb as a winner pre-IPO unicorn for at least the past four years, even though my wife’s fear of axe-murderers and peephole pervs prevents me from sampling its vast offerings. The Uber IPO was a spectacular failure, as the shares fell 18% below the $45 IPO offer price before clawing back painful losses on a short covering bid. I am convinced Airbnb IPO will be a spectacular winner. Why?
One, Airbnb has built the world’s ultimate home sharing and travel experience brand in the past decade. Airbnb boasts six million listings, 150 million engaged users, a global footprint, the potential to double its existing 20% EBITDA margins, its vast client engagement and ultimate asset light hospitality brand make me go gaga over this unique E-commerce platform.
Two, Airbnb’s recent acquisition of last-minute hotel room vendor Hotel Finder in a $450 million stock/cash deal implies a private market valuation of $35 billion. This is only $3 billion above its last private market financing round in March 2017. In late 2016, insiders sold Airbnb shares in private exchanges at $28 billion. The conclusion is unmistakable. Airbnb is now more expensively valued on Wall Street than either Expedia or Hilton.
Three, the Valley grapevine suggests there will be no Airbnb IPO in 2019. This is just as well since I envisage a glut of unicorn IPO’s that will slaughter investors in the NASDAQ/NYSE aftermarket. Unlike Uber or Lyft, Airbnb is EBITDA adjusted profitable since its last funding round in March 2017.
Four, the revenue run rate is at least $6 billion at current levels. There are even rumours that Airbnb does not need new capital and will only do a direct listing on the New York Stock Exchange, albeit at a valuation north of $40 billion. If Airbnb is serious about entering the airline business (why enter a cutthroat Darwinian business that always ends in tears, as the fate of Sir Freddie Laker, PanAm, TWA, Sabena, Swissair, Jet Airways, Al Italia, Air Berlin etc. attests), an IPO becomes certain in 2020.
Five, I never allow my love for a company’s products to make me fall in love with its stock price – though Chipotle Mexican Grill is a definite exception. Unlike, Uber, I doubt if Airbnb will allow its investment bankers to pitch a greed-crazed IPO valuation. Airbnb has won the Gorilla Game on a global scale and will be the hottest IPO from Silicon Valley in my view. That much, at least, is certain.
Six, Airbnb’s business model is infinitely less risky, more profitable and more scalable than Uber or Lyft. Why? A car ride is a utility, a dream holiday is a unique human experience. Airbnb can offer a French chateau or a Caribbean island break for the well-heeled cognoscenti – or a treehouse, motor yacht or Irish horse breeding farm as a destination. Uber’s offering is more utilitarian, even a pain. Who rents an Uber Bugatti or Lambo? Who looks forward to an Uber ride amid a Dubai or London traffic jam as a unique human experience? Oh please!
Seven, most Uber drivers net well below $15 an hour, below minimum wage in the West. This means a political/populist backlash for higher driver wages is inevitable in the big megacities where Uber gross bookings are most concentrated and where the labour market is white hot – New York, LA, San Fran, London, Sao Paulo, Paris. Uber’s margins and cash flow will be eroded over time by driver demands for higher wages and so will its stock price.
The situation in Airbnb could not be more different. Hosts keep 85% of a paying client’s revenue. After initial host due diligence, Airbnb can largely digitize interactions with clients to an extent unthinkable with Uber.
Eight, automobiles depreciate steeply over time, houses generally appreciate over time. Airbnb’s business model has far more pricing power than Uber, which also bears higher fuel cost and insurance premium and maintenance costs for vehicles as a percentage of revenues. Waymo, Apple and Tesla are the real McCoy in driverless cars, not Uber. Uber faces a future of technological innovation that it cannot possibly win – unlike Airbnb, which owns the future.
Nine, Uber has a toxic, adversarial culture and unstable management policies. Co-founder Travis Kalanick was sacked by the board for a sexist culture in 2017. Yet Dara Khosrowshahi has also just sacked his own handpicked chief operating officer ($47 million pay) the highest paid executive at Uber, also accused of insulting women and minorities. He also sacked Uber’s chief marketing executive, an ex-Coca Cola star. Constant instability in the C-suite is the sign of a business gone badly wrong, especially given the mismanagement of the Uber IPO. The Airbnb culture and management track record could not be more different. So, I remain and Airbnb bull and an Uber bear. Note, Beyond Meat’s $45 plunge in a single trading session on Tuesday – now that was a money-making fiesta. Thank you, J.P. Morgan!