Few investors believed an IPO (Initial Public Offering) from the traveling industry would have success during a pandemic year. Yet, so as if 2020 continues to defy all traditional rules, it was possible.
Before looking at some details on one of the most incredible IPOs of all times, we should review some of the options the owners of a company have to raise capital. IPO is one of them. As the name suggests, with an IPO, the owners sell part of a company to raise capital for future developments. For instance, to expand to new markets, to expand the product range, and so on. Another way to raise capital is private placement – selling stakes to private individuals.
If you choose an IPO, the underwriter (i.e., investment bank) prices your shares in such a way to appeal to the public. After all, the underwriter has no interest in representing the IPO, and ideally, the offer will be oversubscribed. This, typically, means a higher price than the IPO price at the moment the shares start trading.
Curious Facts About the AIRBNB IPO
We will start with the conclusion – this is a successful IPO, as the price skyrocketed 112% in public market debut, meaning a market capitalization of $86.4 billion. This is just nine months after the market for IPOs was literally dead.
Moreover, at the current market capitalization, AIRBNB trades at fifteen times the estimated 2022 revenue. Read that again, please – estimated 2022! Why is this important? It is extremely important because it means 15 times the revenue under normal economic conditions (i.e., no pandemic, as vaccines are rolling out already).
Therefore, we have an explanation for what drives the IPO frenzy – fear of missing out, cheap money, rising stock market. This is also interesting because owners of a company may choose to speed-up an IPO or delay it, depending on the stock market conditions. For instance, no one wants to have an IPO during a bear market because of the high risk that the IPO will be undersubscribed.
Yet, AIRBNB, a traveling company, decided to go ahead with the IPO during a pandemic. Judging by the results, it was the right decision to be made.
Once again, this is just another example that in business and financial markets, anything is possible. Logic is often ignored by future cash flow expectations or simply by current market sentiment.
I will end with this – at the current market capitalization, AIRBNB is worth more than Accor, Hilton, and Marriott combined. Yet, it generated -$0.3 billion in EBITDA.