As the novel coronavirus attached its soul-sucking, lamprey eel tentacles to America and the world in 2020, it took down 1.9 million lives and the livelihoods of good people in a slew of slain industries. Among those scorched, perhaps none suffered so much as travel and hospitality — which brings up a baffler. If Airbnb (NASDAQ:ABNB) laid off a quarter of its workforce in May, why did it go public and begin offering up Airbnb stock on Dec. 10?
Whatever the reasoning, it made CEO Brian Chesky one very rich dude. The home sharing company had set a first-day price of $68 per share — and closed at $144.71, more than double that amount. And just like that, you have as of this writing an outfit valued at roughly $91 billion.
But can giddy investor enthusiasm like that last? Without the fundamentals, no. With share prices flat a month later, more investors have begun to see the downsides of Airbnb stock. Its earnings per share are in the red by $1.77. People who bothered to review its filing prospectus uncovered key lines such as “the impact of actions to mitigate the Covid-19 pandemic have materially adversely impacted and will continue to materially adversely impact our business, results of operations, and financial condition.”
In other words, cancel my reservation. Now, take note of my reservations.
Airbnb Stock Fever or Covid-19 Chills?
Yes, the appearance of Covid-19 vaccines has also provided a shot in the arm to anything connected with lodging and vacations. But we’re still in what President-elect Joe Biden has called the “dark winter” of the pandemic. As I write this, California — the state Airbnb calls home — has 22,000 Covid-19 hospitalizations, according to The Guardian. By next month, that number is expected to jump to 30,000.
Elsewhere, more hospitals are jam packed with Covid-19 patients than in the spring, summer and fall — not less. Optimism kickstarted by the new round of vaccines from Pfizer (NYSE:PFE) and Moderna (NASDAQ:MRNA) has been a godsend. More are on the way. But that’s not going to have travelers packing their bags anytime soon.
I agree with my InvestorPlace colleagues who predict that travel will bounce back in 2021. In fact, now probably represents the ideal buying opportunity within the sector. Never forget the words of value investor kingpin Warren Buffett, who loves to buy the stocks of otherwise healthy companies “when they’re on the operating table.”
But the puzzlement with Airbnb stock, as I see it, surrounds the timing of its entrance. Having not faced Covid-19 headwinds as a public company, there’s no share price “comeback” to speak of. In theory, revenues could remain low and yet investors wouldn’t benefit much from any vaccine-related tailwinds.
Where Valuation Meets Sterilization
There’s also the perception (and even reality) question regarding safety. As things return to something kinda-sorta-maybe normal, I’m much more likely to trust a hotel purveyor to properly sanitize and sterilize my lodgings over someone renting out their kid’s spare bedroom or the coach house. The last time I did an Airbnb in Nashville, I shared a house with three people. No way in hell I can see doing that now or for the foreseeable future. And I can’t be the only one thinking this way.
Any home sharing company can yack-yack-yack all it wants about “we’re urging our hosts to do this” and “we’ve hired the Maltese Air Force to drop hand-sanitizer bombs on our rentals” that. Here’s the thing: They’re not professionals. They may be perfectly fine and charming people. But I have no idea what their sanitary values are. For starters, a good portion of the population still believes that face masks are for wimps.
The bottom line is that when I close my eyes and imagine myself in an Airbnb rental, I squeeze past the homeowner who’s just coughed a green streak all over my suitcase. Only I don’t know it. Remember, by Airbnb’s own sector definition, you are…sharing. Someone’s. Home. Finding a dirty spoon in their silverware drawer is child’s play compared to this.
Not Worth the Risk
This is the kind of true-life theoretical analysts almost always miss, but my twisted creativity attracts like magnetic filings. Nonetheless we’ve reached a fairly similar conclusion regarding the stock’s immediate future. Of the 31 firms that cover Airbnb stock, 19 call it a hold.
Yes, nine label it a buy. But two others call it a sell, which I see as pretty unusual for so new a public company. Sell already? After a month? Maybe that’s because the high-flying IPO is as good as it’s gonna get. Nor was the third-quarter 2020 report spectacular. While the market expected earnings of 83 cents per share, Airbnb stock broke even, making for one rather substantial miss.
Perhaps as a consequence, the consensus price target pretty much sits where share prices hover today. And just as I’d say a home sharing rental just isn’t worth the risk, I’d say Airbnb stock isn’t worth the risk either. For signs that this outlook could and should change, look first at the lodging industry for signs of life. Then scan the market for the rising tide to lift all boats in that sector.
Finally, listen to what health experts say about Airbnb-type arrangements as the pandemic continues. Maybe they’ll sign off. Maybe some already have. If they give a green light on home shares, maybe Airbnb shares should soon follow.
On the date of publication, Lou Carlozo held long positions in PFE and MDNA.