An Airbnb pre-IPO stock split gives the company's potential public debut more momentum because its share price in theory would be lower. Of course, none of Airbnb's IPO paperwork is public yet so the particulars of the IPO are just guesswork for now.
Airbnb could be making it easier for retail investors to participate in its expected initial public offering.
That’s one way to look at Bloomberg’s story that the Airbnb board approved a two-for-one stock split of its privately held shares that become effective Tuesday.
For those venture capitalists that already own shares, the value of each one will climb 10.4 percent after the split.
“Before the split, the shares were valued at $69.76 each as of Sept. 30, compared with $63.15 at the end of the previous period, according to the email,” Bloomberg reported. “After the split, the company’s common shares were valued at $34.88 apiece as of Sept. 30, according to the email.”
Airbnb hopes to raise $3 billion in its IPO, which could occur in December or later, according to reports.
Seth Borko, senior research analyst at Skift Research, explained that stock splits are usually “window dressing” as they do not change the fundamental value of a business, and seldom have long-term repercussions.
Airbnb likely did the stock split for logistical and marketing factors, he said.
“Maybe there is some issue with the number of shares outstanding and having more available makes it easier for the underwriters to divvy them up and allocate them to investors,” Borko said. “Or maybe Airbnb anticipates a lot of participation from small retail investors and thinks a lower share price will make it more attractive for that class of investors to buy shares.”
Dan Wasiolek, senior equity analyst at Morningstar, agreed that the stock split changes nothing about the fundamentals of Airbnb’s business.
“It appears to be another signal toward an IPOI occurring this year,” Wasiolek said. “The split itself has no impact on intrinsic value. We look forward to gaining access to financials once an S-1 filing is made available.”
The increased valuation also reflects the booking recovery that occurred at Airbnb since the depths of the pandemic when the business, like at the vast majority of travel companies, tanked.
Many retail investors, as opposed to pension funds and other institutional investors, are looking toward a December Airbnb initial public offering with great interest. Individual investors, such as those who have made the Robinhood app a household name, may be in a better position to buy Airbnb shares when they make their public debut because the pre-IPO stock split lowers the share price. Robinhood users, however, can buy fractional shares through the app.
Without taking a stand on the Airbnb IPO, Borko published a analysis last week expressing the view that it is a mistake to view Airbnb as a hospitality company like Marriott or Hilton because Airbnb more closely resembles an online travel agency like Booking.com or Expedia.
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Photo Credit: This is a file photo of a Pasadena, California house that was listed on Airbnb and used as a meeting space pre-pandemic. Airbnb is doing a stock split for existing investors. Airbnb