Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn


Airbnb is worth US$60 a share

Dan Wasiolek  |  14 Dec 2020Text size  Decrease  Increase  |  
Email to Friend

We believe Airbnb has achieved a critical-mass network advantage in alternative accommodations, the source of its narrow moat, as witnessed by its 5.7 million active listings (the supply side of the network equation) and 247 million guest arrivals (demand side) in 2019.

We see its network position supported by further expansion into emerging markets, where Asia-Pacific was already 12 per cent of 2019 sales, and the experiences vertical, which we think adheres well to the company’s communal culture.

In addition to a fit network effect, Airbnb’s liquidity profile is stout. To illustrate, the firm had US$5.6 billion in pro forma cash and marketable securities, with just US$1.8 billion in debt as of 30 September 2020. Also, it generated US$5 million in free cash flow during the first nine months of 2020. As a result, we think Airbnb has enough means to invest in its platform, barring a prolonged shutdown of global travel.

We have initiated coverage of Airbnb with a US$60 ($79.62) fair value estimate, which models healthy 15 per cent average sales growth during 2020-29, with operating margins meaningfully expanding to 25 per cent in 2029 from negative 10 per cent in 2019.

Our valuation implies roughly a US$40 billion market cap. Meanwhile, about 20 per cent of narrow-moat peer Booking’s 2019 business was from alternative accommodations. Because this segment offers faster growth than Booking’s consolidated average, and despite its higher servicing costs, we think it is reasonable to attribute 25 per cent of Booking’s roughly US$85 billion market cap to this business, implying a US$21 billion market cap.

We believe Airbnb’s alternative accommodation business should warrant a premium to Booking’s, given the former’s US$38 billion in 2019 alternative bookings versus the latter’s roughly US$20 billion (although we think Booking overall offers a more complete network with structurally higher margins). But with Airbnb shares trading well above our intrinsic valuation, we think investors should avoid this advantaged travel operator.

Morningstar's Global Best Ideas list is out now. Morningstar Premium subscribers can view the list here.

See also Morningstar Guide to International Investing.


Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass


is a Morningstar senior equity analyst, based in Chicago, US.

© 2022 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'regulated financial advice' under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information, refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Morningstar’s full research reports are the source of any Morningstar Ratings and are available from Morningstar or your adviser. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend