Airbnb shares soared 120% on its long-awaited initial public offering (IPO) to propel the vacation rental company’s value to over $100bn.
The company’s shares started trading at $146, which was more than double the $68 per share price set for its IPO the previous day. The stock then shot up to $165 before falling back to close the day at $145 a share.
Overview of the Airbnb’s IPO
For a company that has been devastated by the coronavirus pandemic, Airbnb’s successful IPO is nothing short of remarkable.
The beginning of the pandemic saw the company’s business suffer with the number of cancellations exceeding new bookings and revenues dropping by as much as 80% in the span of two weeks. Airbnb had to lay off thousands of workers and take out billions in loans to stay afloat.
But things have improved with time. The company actually managed to become profitable during the third quarter of the year, which it attributed to customers booking rentals for local travel and remote work.
With promising coronavirus vaccines and a return to normality seeming more likely than ever, business is looking up for Airbnb.
The rush for Airbnb’s shares witnessed on IPO day is a huge signal of investors’ optimism about travel going back to normal soon.
Airbnb’s IPO came just a day after another tech company, food delivery app DoorDash went public with its shares soaring 85% on the first day of trading.
On trading platform Stake, Airbnb actually attracted 10 times the trading volume of DoorDash’s IPO and six times the volume that parent company of rival Booking.com had received all year, according to Stake’s CEO Matthew Leibowitz.
Mr Leibowitz noted that interest in Airbnb was so huge on Stake that as of 11 Dec, about 1% of all traders on the platform had already traded the company’s shares and put almost $5 million through it.
“Airbnb is a game-changing company and the huge interest in trading its IPO shows the desire our customers have to get access to high-growth companies from the ground up”, said the Stake CEO.
Which other companies are going public soon?
The first half of 2020 severely impacted the IPO market. But in the last few months, things have improved and the market looks set to finish the year and begin the new one on a high.
Here are few upcoming IPOs that are worth keeping an eye out for:
Robinhood
- Industry: stock trading
- Expected timeline: 2021
Roblox
- Industry: online gaming
- Expected timeline: early 2021
Wish
- Industry: e-commerce
- Expected timeline: 2021
Bumble
- Industry: social networking/dating app
- Expected timeline: early 2021
Petco
- Industry: pet retail
- Expected timeline: 2021
UIPath
- Industry: robotics
- Expected timeline: 2021
Closer to home, these UK companies are also planning to go public soon:
Deliveroo
- Industry: online food delivery
- Expected timeline: early 2021
Trustpilot
- Industry: online reviews
- Expected timeline: 2021
Darktrace
- Industry: cybersecurity
- Expected timeline: 2021
McLaren Group
- Industry: sports car manufacturing
- Expected timeline: 2021
Vue International
- Industry: cinema operations
- Expected timeline: 2021
Is investing in IPO stock a good idea?
Historically, IPOs have witnessed volatile movements on the first day of trading or shortly after. Stock prices often shoot up after the offering as a reflection of investor demand.
This might translate to large gains for those who get an opportunity to buy shares before the first day of trading.
But because most investors can’t participate in the IPO, they end up paying higher prices if they want to buy stock on the first day. If the price then goes down (which is quite a common occurrence), these investors stand to make losses.
For example, an investor who was able to participate in the IPO and who was able to scoop up Airbnb’s shares at their offer price of $68 would have closed the first trading day with more than double profits at $145.
But if they couldn’t participate in the IPO and instead bought shares on the first day of trading at their peak of $165, they would have ended the day with a loss.
Take away
Given the uncertainty about the stock’s prospects, it might be better to wait, say six months to a year, to buy the shares of a newly public traded company like Airbnb so that you can gauge the stock’s real value.
Remember also that there are no assurances when it comes to investing, and IPOs are no exception. So always conduct proper research on any company of interest and then decide whether it’s worth investing in based on your individual financial circumstances and your risk tolerance.
