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Watching the flurry around Airbnb's (NASDAQ: ABNB) IPO this week has been extremely entertaining, but that's because I'm keeping a safe distance from the action. For many investors, the fact that the stock doubled its first day of trading is reason enough to take a backward step. But beyond that, anyone with a halfway-decent memory knows how bad the initial COVID-19 onslaught hit this company. If not, a quick refresher: Approximately 25% of the staff were laid off in May, 2020.
Unlike many companies, Airbnb didn't bounce immediately back after those first grim weeks of the pandemic. People's terror of being in other people's spaces didn't lessen for months -- and hasn't lessened at all, for many. Even though the frantic need to wipe down every surface and wash every grocery may have abated, people are still fearful about just how this airborne disease might make its way into any space where other people exist, breathing, on the other side of a wall.
It's true, vacation rentals aren't seeing the prolonged suffering that the hotel industry is, but the vacation rental industry is far from recovered. In states like Hawaii and California, strict quarantine and stay-at-home orders have prevented them from even opening to guests in many cases. In other states -- yes, even the more relaxed Republican-governed states -- COVID-19-friendly sanitation tacks an extra $70 average to every stay, even a one-nighter.
What should investors consider?
I get the feeling most people jumping headlong into the Airbnb stock-buying frenzy are not considering an operator's perspective, or even a guest experience. From watching the chatter on Twitter (NYSE: TWTR) and Facebook (NASDAQ: FB) investor rooms, this looks to me like a full-on case of Robinhood bros gone wild. They know the name Airbnb -- one of the greatest of the unicorns, the leader of the peer-to-peer travel networks, a wonderful rags-to-riches start-up story! And that is all they need to know.
The rush to buy ABNB at any price is comparable to the frenzy around Tesla (NASDAQ: TSLA), Snowflake (NYSE: SNOW), or DoorDash (NYSE: DASH): The company has a huge reputation; therefore, it's worth paying hugely to own any share of it.
These investors have no idea what occupancy is like in short-term rentals (STRs) state by state right now, much less internationally. They don't know what percentage of Airbnb inventory is currently online -- and how little of that is booked. They haven't researched how many Airbnb owners are already putting their investment properties on the market.
Anywhere from 30 to 90 days from now, you'd expect to see demand wane, even for a company that was consistently reporting great earnings and garnering only glowing press. But Airbnb is in for an extremely volatile and unpredictable next year. It may never see a way out of endless litigation with local government. And its profitability will always be hampered by the attempts of neighborhoods, communities -- even entire cities -- trying to banish it altogether.
Last year, one of the biggest questions asked of Millionacres was "Can I become rich from Airbnb?" and the answer, more and more often, was…"Probably not."
So now, a whole new group of people wants to get rich off Airbnb, and these opportunists may not even own property. They have no business experience with it at all. Therefore, my guess is, they know nothing of its many wars with local governments, or how many "hosts" were shut down for violating community bylaws, or really any of the red flags a property owner might learn in doing their own due diligence before becoming a host.
To make it clear, I do believe in Airbnb, as a consumer and an investor. The company is a true change-maker that redefined the lodging industry. It hasn't always done everything right, but I believe it's tried, especially lately, to do more things responsibly. Its precautionary messaging around COVID-19 travel restrictions and sanitation practices has been better than just about any travel booking platform. Nonetheless, it's had a rough go and will continue to for the next many years, because it's fighting so many entrenched players in the hospitality and housing sectors.
Given the Robinhood-type investor's propensity to scream "WHY??" when a popular stock dips the tiniest bit, for example, dumping all their Twitter stock even after the company beat revenue expectations, I really don't see them buckling in for Airbnb's uncertain near- and medium-term future. And when they ditch it, I plan on buying, because I think it's here for the long haul.
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