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Stock Analyst Update

Airbnb IPO Looks Poised to Take Flight

We think the firm offers investors a powerful network advantage, which is the source of narrow moats for peers Booking Holdings and Expedia.

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Airbnb’s plans to file for an IPO in August come at a time when travel demand has been slammed by coronavirus concerns, which have also weighed on the shares of many travel operators. Although we expect global travel demand to take years to recover to 2019 levels, Airbnb’s domestic vacation rental bookings returned to year-over-year growth starting in mid-May, as travelers have sought road destinations versus air trips during the pandemic, aiding its plans for an IPO.

Based on our past analysis of Airbnb (as the company is not public, we do not actively cover it), we think the firm offers investors a powerful network advantage, which is the source of narrow moats for peers Booking Holdings (BKNG) and Expedia (EXPE)

Airbnb’s network strength is evident in its leading position in the roughly $150 billion global alternative accommodation booking market. To illustrate, in 2019, we estimate over half of vacation rental bookings occurred online, with Airbnb garnering around 40% share compared with the estimated mid-20% and midteen shares at Booking and Vrbo (owned by Expedia), respectively. And although we expect vacation rentals to remain Airbnb’s core market for the foreseeable future, we believe its high awareness (strong direct bookings and mobile app usage worldwide) can aid its vertical extension into boutique hotels, experiences, and transportation, thereby supporting its network advantage.

That said, Booking and Expedia networks also include traditional hotels (around a $600 billion booking market), affording a more complete offering, to which Airbnb’s communal culture does not adhere. Also, Airbnb’s core vacation rental space faces potential coding and listing regulatory headwinds, which could challenge the company’s network advantage.

While it’s still unclear whether Airbnb will finally take the plunge into the public markets, we think investors seeking online travel exposure now should review Expedia, which trades at a meaningful discount to our $127 fair value estimate.

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Dan Wasiolek does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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