Airbnb is becoming a destination for stock market cash as shares in the company begin publicly trading Thursday. But should that make the San Francisco-based home rental company a place to stay for retail investors who want to grow their portfolio?
Wednesday marked the first day of trading for DoorDash
which ended its New York Stock Exchange debut with shares up more than 80%. The same day, however, ended with stocks slumping overall and the Dow Jones Industrial Average
dropping 0.5% and the S&P 500
Then there’s the pandemic, which has cut hard into tourism and left open questions about the travel industry in 2021.
An Airbnb spokesman declined to comment ahead of the IPO, but the company’s own IPO materials filed with the Securities and Exchange Commission acknowledge these 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 COVID-19’s cumulative and ultimate impact on our future business, results of operations, and financial condition.”
Still, 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 does that make an Airbnb
stock purchase a no-go, or a hot trip? Financial advisers talked to MarketWatch about what average investors need to consider.
The trip may be bumpy
Anyone who wants to buy to Airbnb should be ready for big price swings, just like with other IPOs, said John Bovard, owner of Incline Wealth Advisors in Cincinnati, Ohio. Newly-offered stocks can be volatile and speculative without a trading track record to measure, Bovard said.
He recently lived through the experience after buying shares of Palantir
the software company which started trading publicly in late September. Following some initial price drops for a stock that opened at $10, shares closed Wednesday at more than $26.60.
Don’t miss: Opinion: How Palantir’s early experience in Japan helped set up its successful IPO
“I have experience. It was still nerve-wracking for me,” Borvard said. “The best thing I did was hold onto it.” If the Airbnb shares at some point dip big, “just hang on, just hold onto it,” he said.
Other market experts say it’s easy to fixate on high-profile companies, like Tesla
but it’s important to check your own risk tolerance and capacity to stomach price peaks and valleys.
With Uber’s 2019 IPO, it started trading at $42. Within months, it dropped 23%, but then rebounded again — only to drop farther with the March market downturn. The stock is up 80% year-to-date, closing Wednesday just under $54.
Don’t invest just because you think you know the brand
It’s easy to understand how Airbnb works. After all, more than 4 million hosts have accommodated the arrivals of over 825 million guests since the company’s 2008 founding, its IPO documents note.
But experts caution that knowing a company’s service and even using it is different from understanding its investment risks. Familiarity with a brand and emotional ties to that brand aren’t a sound basis for an investment, Monica Dwyer, vice president, wealth advisor at Harvest Financial Advisors in West Chester, Ohio, previously told MarketWatch.
Airbnb has its own hurdles, noted Roshani Pandey, founder of True Root Financial in San Francisco. That includes the possibility of an array of zoning restrictions that will jeopardizing short-term rentals, she said.
To learn about a well-known company from an investing perspective, it’s wise to look at the company’s fundamentals, Erika Safran, the founder and principal of Safran Wealth Advisors in New York, N.Y., previously said.
These are crucial metrics like the price-earnings ratio and company revenue, or technical analysis, like stock price and trade volumes during medium and long-term timeframes.
Treat a possible Airbnb share purchase like other stock purchases, said Treyton DeVore, a financial planner at Piertree Planning, based in Kansas City, Mo.
“Do your research, look at competitors, and understand what you’re investing in with the thought that quarantine and lockdowns won’t last forever,” he said. “There’s always a lot of hype around IPOs. Don’t let FOMO push you into buying a stock just because everybody else is.”
The journey is long
A retail investor who starts buying up Airbnb — or any newly-offered stock — should know from the start they aren’t going to quickly walk away rich. “The biggest winners in IPOs are generally the early investors who invested in the company before the IPO,” DeVore said.
It actually could take some time for a payoff. People who bought up shares of Snap
the company behind Snapchat, had to wait more than three years “to break even on their IPO purchases,” DeVore said. (The company is now up 200% year-to-date.)
So that’s why a buy and hold position could be the best bet for anyone who wants to own Airbnb stock, observers said.
Bovard says he’s actually bullish on the company, because he thinks the worst is behind it at this point. Nevertheless, investors should only be devoting 10% of their liquid net worth to speculative stocks like Airbnb, said Bovard.
The rest of that money ought to be in diversified index funds and ETFs, he said — “but I do understand people want to invest in something and take a chance at hitting home runs.”
Other advisers say it’s all right putting aside a bit of “play money.” Jared Friedman, a financial planner at Redwood Financial Planning in Scotch Plains, N.J., told MarketWatch he’ll typically green-light clients devoting 5% of their portfolio to the companies that interest them.
With Airbnb, Pandey said “one approach would be to dip your toes in, and buy some stocks at the open and consider buying more over time, rather than all at once.”