Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Airbnb Stock Crashed This Morning

By Rich Smith - Dec 14, 2020 at 2:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

No sooner does Airbnb IPO, than it gets downgraded.

What happened

Airbnb ( ABNB 8.59% ) 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

Cartoon characters confused by stock chart arrow falling and crashing through floor.

Image source: Getty Images.

So what

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.  

Now what

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Airbnb, Inc. Stock Quote
Airbnb, Inc.
ABNB
$181.07 (8.59%) $14.32
Booking Holdings Stock Quote
Booking Holdings
BKNG
$2,283.02 (7.97%) $168.58
Expedia, Inc. Stock Quote
Expedia, Inc.
EXPE
$168.96 (8.60%) $13.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
140%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/06/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.