Airbnb (ABNB 0.54%) had a great IPO week last week, first "dramatically" raising its IPO price to a range of $56 to $60 before actually going public, then more than doubling on its first day of trading before pulling back just a bit to close the week.
This week could be a bit different. With a downgrade as the first news of the week, Airbnb is starting off on a down note and falling 8.4% through 1:10 p.m. EST
So what exactly happened this morning? Here it is in a nutshell:
Airbnb's IPO was a huge event on Wall Street, necessitating the involvement of more than three dozen separate investment banks to bring it public. One firm that did not participate in the IPO, however, was equity research firm Gordon Haskett. It took its independence (and the fact that it's accordingly not bound by any post-IPO quiet period) as an opportunity to throw some shade on the IPO.
In a note covered earlier today by StreetInsider.com, Gordon Haskett downgrades Airbnb all the way from "buy," based on its pre-IPO valuation, to "underperform" (i.e., sell), based on its post-IPO run-up.
Airbnb's stock price (currently just under $128) looks "more than stretched," according to the analyst, and is about three times the valuation accorded to rival online travel agencies, such as Booking Holdings and Expedia. Although the analyst believes Airbnb's rapid growth deserves a premium, it considers the current 300%-plus premium excessive and calls today's downgrade a "tactical valuation-driven downgrade," predicting the gap in valuation will close in the near future.
By the end of next year, Gordon Haskett expects to see Airbnb trading closer to $103 a share as opposed to its current $128-ish valuation.
When you consider that Airbnb recorded more than $1 billion in losses over the past year and negative free cash flow in excess of $1.2 billion, and that analysts are forecasting continued cash burn through 2021 at least and generally accepted accounting principles (GAAP) losses through 2022, I cannot disagree. Airbnb's future may be brighter than its present, but in the near term at least, there are plenty of reasons to be skeptical of this stock's current $76 billion valuation.