As Wall Street begins coverage of Airbnb’s stock, Wells Fargo Securities senior internet analyst Brian Fitzgerald joins Yahoo Finance Live to discuss the company’s performance since going public and his outlook.
JULIE HYMAN: Of course, one of the hottest IPOs of last year was Airbnb. It became public in December at $68 a share. The shares are up about 6.5% from their opening trade. And of course, they soared huge on that first day of trading. A number of different analysts have just initiated coverage of Airbnb.
One of them is Brian Fitzgerald. He's a Wells Fargo Securities Senior Internet Analyst. He's got an equal weight on the stock, $160 price target. Brian, thank you for being here. Welcome. A lot of analysts are coming out and saying the valuation is just a little too rich here. What kind of growth would Airbnb have to put up to justify, say, a buy rating at these levels?
BRIAN FITZGERALD: Yeah, thanks, Julie. So we are in equal weight with a $160 price target. We do have bull, bear, and base case in our initiation that we talked to. And so to have a bull case, a bull price target on this stock, we can see it getting to $210.
But you would have to meet the high end of street expectations. That's $4.6 billion in bookings for '21. That's a street high EBITDA of beyond $326 million. And that's a growth rate five-year CAGR of 27%, 37% 10-year CAGR with steady margin accretion up to that long term goal of 30%.
I think most importantly, what you need to see is you need to see them attacking this $3.4 trillion TAM. And you need to see us swinging back towards a normalization of travel as before we get to the second half of the year.
MYLES UDLAND: You Know, Brian, I'd love to ask you just about the process here. The stock was priced at $68 in its IPO. So you know, with a price target of $160, it's done quite well from there.
Have you had conversations with clients who are maybe frustrated by how that went and that they're only able to look at it at $140 today, which, again by your work, suggests that as of right now, it's sort of in the midpoint of some of these valuation kind of outlines you're looking at?
BRIAN FITZGERALD: Yeah, so it's a great question. So we feel close to being fully valued here. You're right. It came out at $68, closed first day at $146. It's hit a high of $175. It's had a low of $172-- or sorry, $122 in its brief stock market career, so very volatile stock coming into the end of the year.
But there's a lot to like about this story. It's a very big TAM. It's a market leader. It's got brand equity and brand leadership. And it's redefining the travel space. You have a solid, strong management team. You have a visionary founder who's still at the controls and still driving this with his vision, so a lot to like.
And again, I think what investors are looking for, and where they can play for the longer term, is how do we snap back out of this pandemic malaise we're in? Did this fundamentally change the way travel is going to transpire? Did this change the way work is going to transpire? So we've all found new relaxed freedoms, more leash in terms of how do you work, how do you work remotely, when do you have to get on.
And so that opens up a long runway for some of these people who are almost turning into nomads in terms of traveling to places they wouldn't have been able to go to before with a laptop, with a phone, with an internet connection. And they're able to do their work from there. And so that's extending the length of stays.
And that opens up a lot more availability, a lot more demand for Airbnb's inventory, and probably more so than a hotel inventory, because they're longer stays, they're houses that you can stay at off the beaten path, versus a hotel room that you're not going to stay in a hotel room ad nauseam if you're doing that type of work.
BRIAN SOZZI: Brian, you have a pretty large coverage list. But I do want to lock into Uber and Lyft, two companies that you cover. Are you concerned about their outlooks for this year after the Georgia Senate race? Obviously you have Joe Biden out there. He's pro union. You had in California under Kamala Harris, you had them try to push through worker protection laws. Do the business models of these companies, do they look different to you today than yesterday?
BRIAN FITZGERALD: Yeah, it's a great question, Brian. So that was a really interesting process going through that proposition vote in California. And you're right. Biden and Kamala Harris were proponents of that. The difference is, and I think with the vote coming out, I think there's going to be more of a focus on reeling in big tech.
Uber and Lyft are getting up to be big tech. I think the focus more there is your Googles, your Amazons, your Facebooks. But there is a focus on both Lyft and Uber and how they've metered through this pandemic. But I also find it hard for regulators or any type of politician to come down too hard on companies that are actually providing jobs for gig workers, when we're at a time of recessionary or depressionary trends.
So as we think about the stocks, we favor Uber over Lyft, because it's gotten more diversification in its revenue streams. It's more of a global company than Lyft is. And when the ride sharing piece of the business isn't working, the food delivery piece of the business and the grocery delivery piece of the businesses is humming on all cylinders as well.
JULIE HYMAN: Brian, thanks for your time this morning. Brian Fitzgerald is Wells Fargo Securities Senior Internet Analyst. All the best to you, Brian. Thank you.