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A fresh new Airbnb IPO is like the equivalent of a fidget spinner for traders: a hot new commodity that captures everyone’s attention for a hot second. But just like any fad, it has the potential to fizzle into oblivion just as fast.
Right now, plenty of traders are getting downright stupid about the prospect of an Airbnb IPO. But is it really bound to be the next big thing, or is it just the flavor of the week?
IPOs can be thrilling, but they can also be dangerous. So what’s a trader to do? Here, I’ll take a deeper look at the potential of an Airbnb IPO and offer some of my tips for how to approach it.
Listen, I don’t want to smack-talk Airbnb. It’s a great concept, and I use the service all the time when I’m traveling for personal reasons or for my charity Karmagawa.
But liking a company doesn’t necessarily make it worth your trading dollars. So what is there to love about Airbnb from a trading standpoint?
One of the good things about Airbnb is that, at least on a EBITDA (that’s earnings before interest, taxes, depreciation, and amortization) basis, the company is profitable. This is in direct contrast to plenty of recent IPOs in the tech sector.
The company has also grown a lot: While they were only founded in 2008, they’re already valued at approximately $38 billion and their growth has been exponential. They’re adding new users all the time, and have completely changed the hotel industry.
What’s Not So Good
I approach the stock market as a glorified history teacher. To try to get a handle on what might happen in the future, I look to the past.
With an IPO, you can’t look at a stock’s charting past. But you can look at related IPOs to see what kind of trajectory a new one could follow.
The recent track record of tech IPOs has been spotty, to say the least. Sure, there are stocks like Zoom (ZM), which nearly doubled in price the first day of its IPO.
But for every outlier, there are several IPOs that tank. Lyft (LYFT) is a great cautionary tale in this regard: shares were initially offered at $72, and quickly slid down to the $60s, then the $50s. If you bought Lyft right out of the gate, then you’re feeling the pain today.
Or consider Snapchat (SNAP). Shortly after its IPO, the stock started trading at $24 in 2017 and peaked a few days after its IPO in the high $20s. But since then it’s fallen steadily in price, and has never regained those early highs.
Even Facebook (FB) offers up a good example of why buying IPOs right away isn’t a good idea. It was initially offered in the $40s, in short order dropped to the $20s and stayed there for a LONG time. If you held on to it, you ultimately made money, but who wants to wait years and years?
Don’t Be a Follower
It can be easy to be drawn in by the excitement about a new IPO. And that’s fine, as long as you can keep your wits about you.
So go ahead, get excited about Airbnb — or any IPO. But don’t risk any of your hard-earned money on it until you’ve done a lot of careful research and formulated a detailed trading plan.
Look at the company’s fundamentals, evaluate what similar IPOs have done, and keep track of the news regarding the company. It’s only through diligent and thorough study that you can build a good case for a trade — not through hot tips or watching what other people are doing.
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Conclusion: Is Airbnb Worth It?
When it comes to IPOs, here’s my opinion: Don’t believe the hype.
For every IPO that reaches incredible highs, there will be just as many that experience account-shattering lows.
So rather than buying in with the rest of the sheep, be calculated in your decisions. Watch, wait, and observe. Carefully study the stock and let it accumulate some chart history. Don’t let FOMO motivate rash and potentially money-hemorrhaging trading decisions.