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Continue Avoiding Airbnb After It Loses $4.6 Billion In 2020

Back in January, I told you why to Avoid Airbnb After Its December 10th IPO.

Today, I give an update after it released its latest quarterly earnings and tell you why to Continue Avoiding Airbnb After It Loses $4.6 Billion In 2020.

You can read the full article above.

But if you don’t want to; here’s a quick recap of why I said to avoid it in the previous article…

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Airbnb IS NOT Cheap

With the markets at or near all-time highs you’d expect a fast growth stock like Airbnb to be selling at an enormous valuation.

Unfortunately, it is.

But I can’t show you this with the normal metrics I use like P/E, P/CF, and EV/EBIT.

Why?

Because its unprofitable on a net income, cash flow, and operating profit basis respectively.  And this means the above metrics would be negative.

So how do I know its overvalued by a massive amount?

By comparing it to other stocks of equivalent size.

In this case an almost exact match in terms of market cap is a company I first told you was a buy back in July 2020 – John Deere & Co (DE).

Its current market cap is $95.3 billion.  When I first told you to buy it back in July 2020 it had a market cap of $55.1 billion and was undervalued compared to its profitability.

In the last year, it generated $35.3 billion in sales.  And on this it earned $3.9 billion in operating profit and $4.8 billion in free cash flow.

And its current valuation metrics are…

Its P/E is 34.6.

Its P/CF is 12.7.

Its forward P/E is 24.

And its EV/EBIT is 34.5.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

Meaning that John Deere is as of this writing massively overvalued… While being far more profitable than Airbnb.

John Deere stock since July is up 72.9% largely because it was undervalued then while producing huge profits.  The market saw this.  And helped increase the size of the company a lot.

As mentioned above I can’t show you Airbnb’s valuations because its unprofitable. But how do its revenues, profits, and cash flows compare to John Deere?

In the last 12 months Airbnb produced $3.6 billion in revenue, negative $681 million in operating profits, and negative $743 million in free cash flow.

John Deere is 15X + more profitable than John Deere when it comes to operating profits.  And 25X+ more profitable on a free cash flow basis… And its massively overvalued now.

Meaning that Airbnb with about the same market cap isn’t just overvalued… Its extraordinarily overvalued compared to what its operations produce.

This makes owning its stock enormously risky.  And for this reason, I recommend you avoid buying it.

Conclusion

If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy – avoid Airbnb and consider investing in one of the stocks I recommend below.

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This thesis to avoid Airbnb continued to play out since January after it released its most up to date quarterly earnings on February 25th 2021… Sort of.

  • Full year 2020 revenue fell 30% to $3.4 billion.
  • And it lost $4.6 billion in net income for the entirety of 2020.

Yikes.

To put this into some context for you… For the full year 2020 the above numbers meant that for every $1 in sales the company generated – it lost $1.35.

Both things largely due to Covid lockdowns negatively effecting both travel and the ability for its clients to rent out their units during the pandemic to travelers.

Here’s what company co-founder and CEO Brian Chesky said about its huge 2020 loss.

Upon our IPO in December 2020, we recognized a non-cash stock-based compensation expense of $2.8 billion. This is much larger than a typical quarter because at the completion of the IPO (similar to many other companies) we were required to recognize a significant portion of all stock-based compensation provided to Airbnb employees over the last several years. The increase in our stock price also increased the value of warrants issued in connection with a term loan agreement entered into in April 2020. We recorded a non-cash mark-to-market adjustment of $827 million related to the warrants in Q4 2020. As a result, GAAP net loss was $3.9 billion in Q4 2020 and $4.6 billion in 2020, compared with GAAP net loss of $352 million in Q4 2019 and $674 million in 2019. GAAP net loss in the second half of 2020 was $3.7 billion, compared with $85 million in the second half of 2019.

What does that really mean?

That another major factor leading to this enormous loss was that because Airbnb stock continued to rise… It triggered the issuing of many warrants and shares that went to compensate company employees and insiders.

Because of this, the company had to charge this amount against its earnings in Q4 2020 and for the entirety of 2020 to pay this out as compensation.

So yes, Airbnb was harmed negatively by Covid… But the bigger issue for all of 2020 for the company were these charges related to the IPO.

They won’t be a huge drag on the company going forward now.

How much did Airbnb shares rise that caused all the above to trigger?

In 2021 so far, its stock is up almost 30% already.

And this has continued to skyrocket its market cap.

As of this writing its now $110.1 billion.  And with it still being unprofitable on an operating income, net income, and free cash flow basis that means its even more overvalued than when I told you to avoid its stock in January.

Again, I can’t show you the exact numbers because the valuation metrics would be negative due to its unprofitability.

But what I can do is illustrate this by comparing it to a company with a similar market cap.

Last time it was John Deere.

Today its John Deere again with a $107.5 billion market cap as both stocks continue to rise.

In the last year Airbnb produced total revenue of $3.38 billion.  Operating income of negative $3.44 billion.  Net income of negative $4.59 billion. And free cash flow of negative $667 million.

Meanwhile in the last year John Deere produced revenue of $36.74 billion.  Operating income of $4.82 billion.  Net income of $3.46 billion.  And free cash flow of $5.82 billion.

In other words, John Deere has 10X higher revenue than Airbnb… It produced almost $8 billion more in operating incomes and net incomes than Airbnb.  And it produced almost $6 billion more in free cash flow than Airbnb… But according to the market they’re both valued at about the same amount.

In fact, Airbnb is valued slightly higher right now than the uber profitable John Deere is.

And John Deere’s valuation metrics are as follows which means its overvalued by a large amount by itself.

Its P/E is now 31.4.

Its P/CF is 13.3.

Its forward P/E is 24.3.

And its enterprise value to operating income – EV/EBIT is 30.3.

This illustrates how massively overvalued Airbnb is right now.

And for the reasons of its enormous valuation and lack of profitability I continue to recommend you avoid investing in Airbnb stock.

Plus, I’ve already found better potential investments for you…

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.


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