Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Airbnb loses Money

I think Airbnb Inc. (NASDAQ: ABNB) exposes the inherent dangers in the sharing economy and the new tech bubble.

To explain, Airbnb loses money and its stock price has been falling since March 2021. In detail, Airbnb (ABNB) went public at $144.71 on 10 December 2020. That price rose to a high of $216.84 on 11 February 2021 and fell to $134.71 on 21 May 2021.

Thus, Airbnb shares are trading for less than the initial public offering (IPO) price. Mr. Market has lost his faith in Airbnb, possibly because of the recent COVID-19 spikes in countries such as Japan and India.

For example, the Japanese government extended its state of emergency after an explosion of faster-spreading COVID-19 variants, The Diplomat reports. Consequently, investors fear more quarantines and travel restrictions that reduce the demand for Airbnb rentals.

The Japanese COVID-19 spike could be fatal to Airbnb because Stratosjet estimates Japan is Airbnb’s eighth largest market. Stratosjets estimates Airbnb had a $3.5 billion economic impact in Japan before coronavirus.

Does Airbnb Make Money?

The financial numbers show Airbnb (NASDAQ: ABNB) loses money. For example, Airbnb reported a quarterly common net loss of -$3.888 billion on 31 December 2020.

Similarly Airbnb reported a quarterly operating cash flow of -$139.11 million on 31 December 2020. In contrast, Airbnb reported a quarterly financing cash flow of $1.767 billion on 31 December. Thus, Airbnb borrowed $1.767 billion in the last quarter of 2020.

Airbnb’s borrowing exceeded its quarterly revenues on 31 December 2020. Airbnb reported $859 million in quarterly revenues on 31 December 2020. The quarterly revenues fell from $1.107 billion on 31 December 2019.

Consequently, Stockrow estimates Airbnb’s revenues shrank by 22.4% in the quarter ending on 31 December 2020.

What Value Does Airbnb have?

Airbnb (ABNB) offers some value. Airbnb had $10.491 billion in Total Assets and $6.425 billion in cash and short-term investments on 31 December 2020.

Those numbers rose from $8.728 billion in Total Assets and $4.551 billion in cash and short-term investments on 30 September 2020. However, Airbnb had $2.313 billion in total debt on 31 December 2020.

The total debt fell from $5.496 billion on 30 September 2020 and $3.651 billion on 31 December 2019. Thus, Airbnb is paying off its debts as its revenues shrink.

Airbnb’s Growing Platform

Interestingly, Airbnb’s platform is growing Stratosjets estimates Airbnb had 2.9 million hosts and over seven million listings worldwide in 2021. Notably, Stratosjets claims 14,000 new hosts joined Airbnb each month in 2020.

Overall, Airbnb has claimed its platform has 150 million users since 2018. Business of Apps claims they have not updated the 150 million user estimate since 2018.

There were active Airbnb listings in 100,000 cities and 220 countries worldwide in 2021, Stratosjet estimates. Statista estimates Airbnb booked 150 million rooms in 2020. In contrast Business of Apps estimates Airbnb had 193 million users in 2020 and 272 million users in 2019.

Airbnb’s revenues fell by 30% in 2020, Business of Apps estimates. Airbnb’s revenues fell from $4.7 billion in 2019 to $3.4 billion in 2020. Additionally, Airbnb bookings fell by 85% at the height of the pandemic, Wired estimates.

Therefore, Airbnb is shrinking even though many people think of it as a growing company. To be fair, Airbnb only shrank because of COVID-19.

Why Does Mr. Market Overvalue Airbnb?

One thing is clear, I think Mr. Market overvalued Airbnb (ABNB) at $134.71 on 21 May 2021.

I consider Airbnb overvalued because it makes no money. In addition, I see no evidence that Airbnb makes any money. I also have to wonder If Airbnb will ever make money.

Moreover, governments in some of the world’s biggest cities have banned or strictly regulated Airbnb, Stratosjets reports. Paris, for instance, requires landlords to register with the city before listing on Airbnb. Barcelona requires a license to list a home on Airbnb, the German government also requires a license for Airbnb, Santa Monica, California, imposes business licenses and an occupancy tax on Airbnb hosts. New York City restricts Airbnb hosts to listing one home at a time and bans Airbnb hosts from renting an apartment for longer than 30 days.

I have to wonder what new restrictions, bans, and regulations Airbnb will face because of COVID-19. I Airbnb could find itself permanently barred from many cities and countries after coronavirus. If hotel industry lobbyists are smart, they will propose such bans now while people are still afraid of Coronavirus.

Given these realities people will wonder why Mr. Market overvalues Airbnb. I think Mr. Market overvalues Airbnb because it is a tech industry favorite. For example, Google Capital and Technology Crossover Investors invested $555.5 million in Airbnb in 2016. Airbnb also received its first funding, $20,000, from Y Combinator back in 2011.

What Future does Airbnb have?

I do not think Airbnb (ABNB) is sustainable as a company or a stock. Instead, I think Airbnb will collapse and get bought by competitor such as Expedia (NASDAQ: EXPE) orBooking Holdings Inc. (NASDAQ: BKNG).

I advise investors to avoid Airbnb because I am not sure this company has a future. In my opinion, Airbnb will be lucky to survive COVID-19.