This morning Airbnb released an S-1/A filing that details its initial IPO price range. The home-sharing unicorn intends to price its shares between $44 and $50 in its debut.
Per the company’s own accounting, it will have 596,399,007 or 601,399,007 shares outstanding, depending on whether its underwriters exercise their option. That gives the company a valuation range of $26.2 billion to $30.1 billion at the extremes.
The company’s simple share count does not include a host of other shares that have vested but not yet been exercised. Including those shares, the company’s fully diluted valuation stretches to $35 billion, by CNBC’s arithmetic.
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The top end of Airbnb’s simple valuation places it near its Series F valuation set in 2017. Its fully diluted valuation exceeds that $30.5 billion valuation and is far superior to the $18 billion, post-money valuation that it raised at during its troubled period early in the COVID-19 pandemic.
For those investors, Silver Lake and Sixth Street, the company’s initial IPO price range is a win. For the company’s preceding investors, to see the company appear ready to at least match its preceding private valuation is a win as well, given how much damage Airbnb’s business sustained early in the pandemic.
But how do those Airbnb valuation numbers match up against its revenues, and will public market investors value the company based on its current results, or expectations for a return-to-form once a vaccine comes to market? And if so, is Airbnb expensive or not?
Expectations, hopes and hype
Shares of Booking Holdings, which owns travel services like Kayak, Priceline, OpenTable and others, have almost doubled in value since its pandemic lows and is within spitting distance of its all-time highs. This despite its revenues falling 48% in its most recent quarter. There’s optimism in the market that travel companies are on the cusp of a return to form, buoyed — we presume — by good news regarding effective coronavirus vaccines.
My expectation is that Airbnb is enjoying a similar bump, as investors intend to buy its shares not to bask in awe of its Q4 2020 results, but instead to enjoy what happens in the back half of 2021 as vaccines roll out and the travel industry recovers.
But what happens if we stack Airbnb’s revenues against its valuation today?
In the first nine months of 2020, Airbnb generated $2.52 billion in revenue. On an annualized basis, the company’s revenue would total $3.36 billion. However, given how awful Q2 was for Airbnb and how far it has already come back, that number is unfairly low. It might be more reasonable to annualize the company’s Q3 results instead. That gives us a run rate figure of $5.37 billion.
Before we run the usual revenue multiple calculations, if you’re wondering why we are not giving the travel platform more credit for future growth, Airbnb’s gross nights booked fell from a July high through August and September, as did its net nights booked. So, the company was shrinking as Q3 went along; to say, “Hey, it will grow in Q4 and therefore we should give it a larger revenue base for our math,” would be generous.
That fact is compounded by the historical trend of Airbnb having smaller Q4 revenues than it records in Q3, its historically largest quarter. So, our annualized Q3 revenue figure may in fact already be too generous.
Regardless, at the company’s three valuation points, here’s how its multiples pencil out:
- Revenue multiple at $44 per share, no underwriter’s option: 4.9x.
- Revenue multiple at $50 per share, with underwriter’s option: 5.6x.
- Revenue multiple at $50 per share and its fully diluted valuation: 6.5x.
Airbnb’s revenue is nonrecurring, so it should not command a SaaS-like multiple. But what is a fair multiple?
To guide us, we return to our public market comp. Booking Holdings wrapped Q3 2020 on a roughly $10.6 billion run rate. A year ago in its Q3 2019 that was a $20 billion run rate. It’s worth $83 billion today. So, at its depressed levels, its revenue multiple has stretched to 7.9x its run rate. At its year-ago run rate mark, that number would be just 4.2x, rounding up.
Airbnb, however, was not down nearly 50% in Q3 2020 from the year-ago period. Its revenues were down just 18.4% from Q3 2019. So, Airbnb was much closer to recovered in the third quarter than Booking Holdings was.
Presuming that investors anticipate that Booking Holdings will return to prior revenue levels in 2021, its effective revenue multiple is lower than what Airbnb is targeting. But to get a more reasonable comparison, what was Airbnb’s fully diluted IPO valuation if measured against its Q3 2019 annualized run rate? 5.3x.
So, if we compare year-ago run rates to today’s valuations, baking in investor optimism about a return to grace for travel companies that we are inferring from the dramatic rebound in Booking Holding’s stock and Airbnb’s valuation this year, Airbnb is a touch more expensive.
So what?
To summarize our thinking: Airbnb looks cheap compared to Booking Holdings today on a multiples basis, but only because the rival company had a far worse Q3 2020. As investors have quickly revalued both companies back to their peak quotation, so we needed to bake that thinking into our own.
So, we took a look at both companies’ implied revenue multiples using historical results that investors might be banking on a return to once vaccines are widely available. At those multiples, Airbnb is a bit more expensive at 5.3x, compared to Booking Holding’s 4.2x.
That’s within wiggle room, gross-margin arguments and the like. Airbnb, therefore, does not feel monstrously expensive at the prices that its first IPO valuation range gives us.
The company may raise its range if demand is hot, as I anticipate it will be. And if it does, Airbnb will add even more to its coffers than the $2.85 billion that its IPO document says it may raise at the top end of its current pricing guidance.
More when we have it.