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2020 was a great year for investors in the SPAC and IPO space. While returns have been abnormally high, that’s also added risk to these securities. One of the largest and best-known new equities was Airbnb (NASDAQ:ABNB). Airbnb stock ended 2020 about flat from its opening price, but that doesn’t tell the whole story.

Airbnb (ABNB) app on a smartphone screen

Source: BigTunaOnline / Shutterstock.com

On December 10, Airbnb stock opened for trading at $146. By the last trading day of the year, shares closed at $146.80. That seems suspiciously nonvolatile, but that hasn’t been the reality.

In the days following the IPO, ABNB shares fell as low as $121.50 and rallied as high at $174.97. That’s not to mention how many times the stock’s IPO price was raised.

The company was aiming to price its IPO between $44 and $50 per share. It then raised that range up to $56 to $60. Finally, it priced at $68 a share before opening at $146. That’s up more than 100% from its final IPO price and more than triple the midpoint of its initial range.

That is a level of exuberance that you should be wary of in the short term. With a market cap of about $87 billion, I think we’ll get a better opportunity in this stock at a later date, after the honeymoon period has worn off.

Breaking Down Airbnb Stock

My concern isn’t so much about the company, it’s more about Airbnb stock and the industry.

Airbnb is an excellent platform and a company that brings a very unique experience to the travel industry. Whether we’re talking about working remote in a more desirable location, a quick trip with family or friends or a work trip in a more homey environment, the landscape has changed with short-term rentals.

I like Airbnb for this reason, but the valuation and industry trends remain as concerns. Put simply, an $87 billion valuation — and at its highs, a $96.6 billion market capitalization — is a lofty sum for a company that’s forecast to do just $3.3 billion in sales this year.

Granted, this is a difficult year for Airbnb, so perhaps next year’s estimate of $4.46 billion is better suited. Still, that leaves shares trading at 19.5 times next year’s revenue expectations.

Valuation doesn’t matter until it does — a terrible but true saying on Wall Street — and if a stock trades at 20 times this year’s earnings, many investors would find that expensive. The fact that ABNB trades at 26.5 times 2020 revenue estimates and almost 20 times 2021 estimates helps put the high valuation in perspective here.

Some stocks can command top dollar when it comes to valuation, but everything has to be clicking. The addressable market must be massive and management must be executing at an incredible pace. Further, the company and industry must face multi-year runways for growth, while the company continues to deliver much better-than-expected results.

Airbnb definitely has growth — going from $3.3 billion in revenue to $4.5 billion in one year suggests as much — but the industry is in a tough period. Even last quarter, Airbnb saw its Q3 revenue fall 18% year over year.

Admittedly, it’s more about what the company will do, not about what it has done. But paying a high valuation for a company in a less-than-ideal environment is not my favorite setup.

Bottom Line on ABNB Stock

Daily chart of Airbnb stock.

At the end of the day, Airbnb stock seems to be trading more on high demand and a bit of euphoria than on its own fundamentals. While investor interest and buying activity does drive the stock price in the short term, it’s ultimately the fundamentals that will move the stock.

It’s true that Airbnb is doing better than many of its travel-related peers. Hotel companies and booking websites have seen a significant slowdown over the last several quarters. While many posted better-than-expected Q3 results, most would have killed for the 18% decline in revenue that Airbnb posted.

Further, Airbnb posted a profit in the quarter. Like I said, this is a great company.

However, we have an uncertain 2021 and an uneven recovery in the overall economy until the vaccine gains traction. Worse, the travel industry faces an even rockier recovery until the vaccine has had ample time to be accessible to the public.

Personally, I just find it too difficult to place a high-flying valuation on a company that’s not flying at its high. Further, with the overall markets at all-time highs and with Airbnb stock eventually facing a lock-up expiration, I would rather wait for a better opportunity in this one.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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