Why I Won’t Be Buying the Most Anticipated IPO of the Year

Thursday, November 19, 2020

On Monday, the investing world finally saw the filing for what some might argue as the most anticipated IPOs of the past few years. After seeing Facebook (Nasdaq: FB, Rated “B”), Lyft, Inc. (Nasdaq: LYFT), Uber Technologies, Inc. (NYSE: UBER, Rated “D”) and even Zoom Video Communications, Inc. (Nasdaq: ZM, Rated “C+”) go public … we finally might see Airbnb hit the public market.

The company is finally taking the plunge after twelve years of pairing travelers and hosts. It really has become the household name of vacation rentals.

According to the S1, the company plans to trade on the Nasdaq under the symbol “ABNB,” and could be priced with a valuation of $30 billion. That would make it the market’s largest listing since Facebook’s $16 billion IPO back in 2012.

That $30 billion valuation comes as a big shock to me. Back in April, when Airbnb was looking for emergency investments, it was only valued around $18 billion. Now, all of a sudden, one good quarter negates all the uncertainty of the current pandemic.

I’m not convinced. The company doesn’t have the best technology, has been actively changing policies that will cost hosts income and has a potential class action lawsuit on its hands due to promised refunds from earlier this year. Add this all up and combine it with the still-present uncertainty in the travel industry, and you can be assured that I will not be standing in line to get shares. 

But I am going to be following this story. I’m dying to know what the valuation ends up being. And more important, I want to know how investors react. I think the fear of missing out will cause shares to rapidly increase … before they inevitably drop.

Until then, I decided to turn to the Weiss Ratings to check in with Airbnb’s competitors. And, yes, it does have competitors.

First up, we have FlipKey, which is owned by TripAdvisor, Inc. (Nasdaq: TRIP, Rated “D”). TripAdvisor originally invested in Flipkey in 2008 and took full control a few years later. Even though it still has its own website, it’s part of the TripAdvisor Rentals family … which the company has hinted it may be interested in selling off.

TripAdvisor has not held a “Buy” rating with us since 2016. And even though it’s partially recovered from its 52% slide in March, shares are still down 10% since the beginning of the year. Its current “D” rating is due to increasing debt to equity and declining total capital.

Next up, we have HomeAway and VRBO. These two are lumped together because they are both owned by Expedia Group, Inc. (Nasdaq: EXPE, Rated “D”) and, earlier this year, the company rebranded the two as a single Vrbo website. Vrbo stands for “vacation rentals by owner”, and the company has been pairing homeowners with families looking for places to stay since 1995.

That’s way before Airbnb came around. But again, Airbnb made the concept a household name. Sometimes that’s what matters when claiming the top dog spot … but not always. Just look at Skype — the name that made video calls into a verb — and it’s fall to Zoom earlier this year.

Expedia has been sliding in the Weiss Ratings since August of 2019 when it held a “B-” rating, compared to its current “D” rating.  Each and every downgrade comes with the note of a noticeable decline in the volatility index, the total return index and the increase of debt to equity.

Shares are up 14% since the beginning of the year, which is actually impressive considering its 57% slide in March. But that’s not optimistic enough for me to think that the company will be a winner anytime soon … especially paired with that solid “D” rating.

Finally, we have HomeToGo, which claims to be the world’s largest vacation rental search engine. It compares over 18 million offers from more than 2,000 vacation home websites including Airbnb, Booking.com, Vrbo and HomeAway.

On Nov. 9, Monaker Group, Inc. (Nasdaq: MKGI, Rated “D”) announced it had completed direct integration with HomeToGo. Monaker Group is a technology-driven online marketplace for alternative lodging rentals, making this an ideal pairing.

Monaker has also announced other acquisitions in an attempt to become an industry leader in consumer engagement through not only travel, but gaming and digital advertising as well. Maybe this will bode well for the company in the future … but the Weiss Ratings system is not convinced.

Since inception, the company has never held a “Buy” rating. In the past it has climbed all the way to a “C”, but it’s currently sitting at a solid “D”. This is only part of the story here. Obviously Monaker is in a growth phase, which means debt and drops in net income.

I’ll admit, I haven’t heard of this company before. Most likely because it’s only trading around $2.28. Shares are up 5% since the beginning of the year … which is impressive since they slid 67% in March. This is definitely a company to watch, but only investable if it can climb through that “C” range and hit a solid “Buy” rating of “B-” or higher.

As much as we want to see the recovery in the travel industry, it’s not time to invest yet. I know I’ll be adding these three companies — as well as Airbnb — to my watchlist to see what the next few month’s hold.

Best,

Kelly Green

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