Airbnb IPO

I will start by saying that until very recently, I loved Airbnb. I won't belabor the single unfortunate hosting experience and subsequent drama it created in my life for the last 75 days, but I wanted to put that out there. I don't own their stock, nor will I, and I'm unlikely to continue hosting through the platform. Throughout 2020, we have rented our place in AZ (because revenue = good, as you know from What the F&@K is Wrong with Everybody Else?) almost constantly, in spite of COVID, and the ease of the use of the platform, the access to "customers" and the simplicity by which the process has gone is truly a great service. Like Uber, which has materially reduced drinking and driving because of it's ease, Airbnb has changed the hosting experience, and for that, I commend them. However...

Once upon a time, there was this little thing called valuation. Airbnb is set to open today (Thursday, December 10) and the original indicated price was $68/share which would value the company at $47 billion. At the time of writing, the stock hadn't opened, and it was indicated at $150/share, which implies approximately a $103 billion valuation. I like Hilton. It's a great hotel chain. Bill Ackman owns it and made it his poster child for the pandemic in March 2020 on CNBC. It's market cap is $30 billion. It's enterprise value is $40 billion.

A couple things to highlight from their S-1.

"COVID-19 has materially adversely affected our recent operating and financial results and is continuing to materially adversely impact our long term operating and fainail results. However, we believe that as the wolrd recovers from this pandemic, Airbnb will be a vital source of economic empowerment for millions of people." Translation: people will need extra money so they will rent their homes to other people that have money.

"We generated $1.0 billion of net cash provided by operating activities and incurred $507 mm of purchases of property and equipment cumulatively from January 1, 2011 through December 31, 2019 generating $520 mm of cumulative free cash flow during the same period." Translation: Our valuation is 200x HISTORICAL CUMULATIVE FREE CASH FLOW THROUGH DECEMBER 31, 2019.

"Our hosts had 7.4 million available listings of homes and experiences as of September 30, 2020 of which 5.6 million were active listings (which means viewable on Airbnb)". Translation: Our valuation is $17,560 per listing. Second translation: this doesn't include my listing because I'm currently suspended because of said party from said guest that said company put in the house.

"If we fail to retain existing hosts or add new hosts, or if hosts fail to provide high-quality stays and experiences, our business, results of operations, and financial conditions would be materially adversely affected." Translation: We don't own the assets we rent and are valued at $17,560 per listing, someone else does. And it costs them 0 to take it off the platform. And we don't control the guest experience.

"Our substantial level of indebtedness could materially adversely affect our financial condition. We had outstanding indebtedness with a principal amount of $1.997 billion as of September 30, 2020." Translation: Cumulative EVER historical free cash flow generated to December 31, 2019 is 25% of the debt.

"Laws, regulations, and rules that affect the short-term rental and home sharing business may limit the ability or willingness for hosts to share their spaces over our platform and exposure our hosts or us to significant penalties." Translation: The neighbors are pissed when 150 person parties are held until 3 am in the morning and the police are called. Second Translation: A lot of cities including Denver, Austin and Paradise Valley are clamping down on short term rentals... in part because of the first translation and in part because hotels have real invested capital.

And my favorite "We are subject to a wide variety of complex, evolving and sometimes inconsistent and ambiguous laws and regulations that may adversely impact our operations and discourage hosts and guests from using our platform, and that could cause us to incur significant liabilities including fines and criminal penalties". Translation: I agree.

Hilton is a hotel what has $11.7 billion in Book value with $9 billion in debt as of December 31, 2019 and has a market cap of $30 billion, so trades at roughly 10x book net of debt and generated $9.5 billion in revenue, so trade at 3x revenue. Airbnb has ~$500 mm in invested capital TOTAL and $2 billion in debt so trades at an infinite multiple to book, net of debt. In 2019, Airbnb generated $3.7 billion in revenue against $3.7 billion in costs and generated a $322 million loss.

Sure... you may be thinking WeWork vs Regus. Or DoorDash vs restaurants. But if I'm Hilton, and I have a network of guests that I have... I know what business model I'd be adding. The valuation looks.... attractive.

Say it with me: we are not in a bubble. It is NOT 2000 (tech bubble) or 2008 (housing bubble) but it sure is starting to feel like 2000 + 2008 = 2020.

(Not investing or valuation advice... mostly a reprint of the S-1, with appropriate quotations for citation).