Airbnb is emerging as a destination for stock market liquidity now that the company’s shares began trading on Thursday. But are those newly issued shares of the San Francisco-based short-term home rental company a good place to stay for retail investor money?
Airbnb opened Thursday at $ 146, up 114.7% from its IPO price point of $ 68. That is, by the time grassroots retail investors gained access to the stock, its price had doubled, if not more. It ABNB,
ended the day at nearly $ 145 a share, up 113% from the price point at which brokers and preferred clients, many of them institutional investors, bought.
A day earlier, the commercial debut of DoorDash DASH,
which ended its first trading session on the New York Stock Exchange with shares up more than 80%. The same day, however, ended with a general drop in stocks. The Dow Jones Industrial Average DJIA,
fell 0.5%, and the S&P 500 SPX,
As of Thursday’s market close, DoorDash shares were down about 2%, as stock indexes ended slightly lower again, reacting to weekly unemployment figures, the state of stimulus talks in the Congress and pending a decision from the Food and Drug Administration committee on directions for a coronavirus vaccine authorization.
COVID-19 raises another question for potential Airbnb buyers. The pandemic has profoundly affected tourism and left open questions about the outlook for the travel industry for 2021.
An Airbnb spokesperson was unable to comment on the business outlook ahead of the IPO, but the company’s own documents have been filed with the Securities and Exchange Commission recognize the existence of question marks, noting that “in light of the evolving nature of COVID-19 and the uncertainty it has produced around the world, we do not believe it is possible to predict the cumulative and ultimate impact of COVID- 19 on our future business, results of operations and financial condition. “
Yet, the company adds, “we believe that as the world recovers from this pandemic, Airbnb will be a vital source of economic empowerment for millions of people.”
So, are Airbnb shares banned, do they deserve a leaflet, or are they a solid long-term investment? Financial advisers spoke to MarketWatch about what average investors need to consider.
The trip can be bumpy
Anyone considering buying on Airbnb should be prepared to deal with sharp price swings, like most IPOs, said John Bovard, owner of Incline Wealth Advisors in Cincinnati. Newly offered stocks are often speculative and can be particularly volatile, with no trading history by definition, Bovard said.
This is a recent experience for Bovard, which bought back shares in Palantir PLTR,
a controversial software company that started going public in late September. After a few early price drops – by a stock that opened at $ 10 – shares closed at over $ 26.60 on Wednesday.
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“I have experience. It was always scary for me,” said Bovard. “The best thing I did was hang on to it.”
If Airbnb shares drop significantly at any point, “hang in there,” he said. “Expect it. “
Other market experts say it can be easy to focus on top-tier companies – Tesla TSLA,
or Uber UBER,
for example, but it’s important to check your own tolerance for price peaks and troughs.
When Uber went public in 2019, it started trading on the NYSE at $ 42. Within months it had fallen 23%, but then rebounded, only to decline further as the market slowed in March. The stock is now up 80% on the year, trading between $ 50 and $ 50 this week.
Don’t invest just because you think you know the brand
It’s relatively easy to understand how Airbnb works. After all, more than 4 million hosts have hosted more than 825 million guests since the company was founded in 2008, as the IPO documents note.
But experts warn that knowing a company’s brand and business model and using it as a client is different from understanding its investment risks. Knowledge and even emotional connection to the brand is not a solid foundation for investing in a business, Monica Dwyer, vice president and wealth advisor at Harvest Financial Advisors in West Chester, Ohio, told MarketWatch.
Airbnb has its own hurdles, noted Roshani Pandey, founder of True Root Financial in San Francisco. They include the possibility of an array of zoning restrictions that jeopardize short-term rentals, she said, with some cities particularly concerned about the company’s impact on housing affordability for locals. and the deleterious impact on the traditional hotel sector.
To learn more about a well-known company from an investment perspective, it’s wise to look at the fundamentals of the company, recommended Erika Safran, founder and director of Safran Wealth Advisors in New York.
Some crucial investment metrics such as price-to-earnings ratios and revenue growth figures are lacking for relatively new companies with minimal histories of audited earnings reports and no stock market history, and similarly technical analysis of the market. The share price and trading volumes are not predicted for IPOs.
Still, said Treyton DeVore, financial planner at Piertree Planning in Kansas City, Missouri, you should treat a potential Airbnb share purchase like any other share purchase. “Do your research, look at the competition and understand what you’re investing in thinking that quarantine and lockdowns won’t last forever,” he said. “There is always a lot of hype around IPOs. Don’t let FOMO push you to buy a stock just because everyone else is. ”
The journey is long
A retail investor who purchases Airbnb – or any newly issued stock – should know up front that investing in an IPO is not a get-rich-quick scheme. “The biggest IPO winners are usually the first investors who invested in the company before the IPO,” DeVore said.
Even the big wins that materialize take time. People who bought Snap SNAP shares,
the company behind Snapchat, had to wait more than three years to break even on its IPO purchases, DeVore said. (The business is up 200% in 2020.)
That’s why a buy and hold perspective is vital for anyone looking to own Airbnb shares, according to IPO and investing experts.
Bovard says he’s bullish on the business because he thinks the worst is behind it at this point. Still, investors should only spend 10% of their liquid net worth on speculative stocks like Airbnb, Bovard said.
The rest of that money should be in diversified index funds and ETFs, he said – “but I understand people want to invest in something and take their chances by hitting home runs.”
Other advisers say it is okay to allocate funds set aside as “virtual money” for such an investment. Jared Friedman, financial planner at Redwood Financial Planning in Scotch Plains, NJ, told MarketWatch that he would generally give the green light to clients who devote 5% of their portfolios to companies that interest them.
With Airbnb, “one approach,” Pandey said, “would be to dip your toes and buy stocks at the open and consider buying more over time, rather than all at once.”