As you might have heard, Airbnb had its long-awaited IPO (initial public offering) yesterday. Like a lot of hot public offerings this year, it was pure insanity.
Airbnb’s IPO shares were initially priced at $68 — so that’s the price that a small group of well-connected investors paid.
But shares opened for trading to everyday investors at $146 — more than double the IPO price. Airbnb closed the day with share prices at $144 and a value just under $100 billion.
Airbnb trading at a $100 billion valuation is especially interesting because back in April they raised a private round of funding that valued the company at just $18 billion (around $30 a share). So in about eight months, the company increased in value about 5x.
I think $100 billion is quite a steep price for a business that lost $674 million on revenue of $4.81 billion in 2019. And one where bookings are down 39% so far in 2020 vs 2019…
Don’t get me wrong, Airbnb is a fantastic company. I’m sure it has a bright future. But at this price, I am steering well clear of it.
As we saw earlier this year with the Snowflake IPO, the big problem here is simple. The average investor didn’t even have a chance to invest in Airbnb before it was worth almost $100B.
All the wealth that was created as Airbnb increased in value from $2.4 million in 2009 to $100 billion now was captured by venture capitalists and insiders. I’m honestly happy for them — they backed a great company. But it’s a shame that public market investors didn’t even get a shot at it until now.
And when public market investors finally did get a chance to buy, they went crazy and bid the price up to silly levels. Even Airbnb founder and CEO Brian Chesky seemed shocked by the opening share price. Here’s an excerpt from Business Insider’s reporting.
Chesky appeared on Bloomberg TV Thursday morning ahead of Airbnb’s IPO. During the interview with host Emily Chang, news broke that Airbnb is indicated to open at $139 per share when it begins trading later today (that price has since climbed to $150 per share).
Chang asked Chesky whether, given the increased indicated share price, he was concerned about froth. Chesky looks visibly surprised during the exchange and is momentarily speechless.
“That’s the first time I’ve heard that number,” Chesky said. “Um … that is … that’s … I … when we … In April, we raised money and it was a debt financing. That price would have priced us around 30 bucks. So, I … I don’t know what else to say.”
“Don’t know what else to say” indeed.
Tech stocks have been incredible performers this year. But I am resisting the urge to jump in. I sold most of my tech companies over the past two years — yes I’ve missed out on some gains, but I’m ok with that. I held some of those stocks for as long as 13 years, so it was a pretty good run.
I’m sticking with my long-term plan. Instead of tech stocks, I’m focused on private startup companies for growth equity. I’d rather try to find high potential early startups than chase $100B newly-IPOed companies like Airbnb. I believe that a big, high quality startup portfolio — 30+ companies — is actually less risky than buying high flying tech stocks in the middle of this Fed-fueled bubble.
Of course, I continue to like gold, silver, bitcoin, mining stocks, select cannabis and emerging markets too. All have done well so far this year. And I believe they are also a lot less risky than hot tech stocks, some of which are valued at more than 50x revenue.
Snowflake, for example, is trading at more than 245x revenue. It’s currently valued at around $120 billion, and it did $490 million in revenue over the last 12 months. SNOW is likely the most expensive large cap stock in history, by a fair margin. Once again, it’s a great company — but with an absolutely crazy valuation.
Make no mistake, we’re in the midst of an expanding bubble. I believe we should all be trimming long-term gains and seeking out alternative investments and hedges. I fear too many people are jumping into hot stocks right now — and I don’t think the timing is ideal, to say the least.
Also, as I said late last year: this does NOT mean you should short the market. That is a great way to go broke. These mania periods can go on for far longer than seems rational.