The public listings of Roblox and Airbnb have garnered a lot of attention in recent times, but is now a good opportunity to invest?
Notable companies going public always garners plenty of hype, and none more so than Roblox (NYSE: RBLX) and Airbnb (NASDAQ: ABNB).
These listings came alongside COVID and presidential uncertainty, but now that some of the initial hype has died down, is it a good time to buy?
Airbnb: Bull vs Bear Arguments
Just like ride-sharing companies disrupting the taxi industry, Airbnb has disrupted the travel sector since it launched in 2008. Airbnb went public on December 10, 2020, with its $68 IPO price skyrocketing to $146 on the opening day of trading. This market cap of $86.5 billion was more than that of major travel-related companies like Booking, Hilton, and Marriott combined.
Airbnb has a good competitive advantage by making up for the shortcomings of hotels as prices can be lower, there is access to community living, and accommodation is often available in areas with fewer options traditionally.
The company had been experiencing significant growth pre-pandemic, with gross booking value in 2019 rising 29% year-on-year. It also has a level of brand loyalty, with repeat guests accounting for 69% of revenue in 2019.
For the first three quarters of 2020, 91% of the company's traffic came from unpaid or direct sources. This highlights the lack of reliance on paid marketing and underlining the level of brand awareness. Bookings as a whole were down 41% last year, with revenue only dropping 30%. As vaccines rollout and the world starts to get back to normal, all signs point towards a subsequent boom in travel.
Airbnb is looking to continue using its tried and tested growth strategy - increasing the number of hosts, launching in new regions, and making improvements to the overall platform.
Roblox: Bull vs Bear Arguments
Roblox is a platform that hosts free-to-play games that are user-created where players are able to buy games using the 'Robux' virtual currency.
With a boom in video game activity due to COVID, Roblox has seen a huge uptick in users. Daily active users almost doubled year-on-year to 36.2 million in Q3 2020 and monthly active users reached 199 million in January 2021.
Roblox went public through a direct listing on March 10. After the first day of trading, the share price rose 54.5% up to $69.50. The stock has been trading at between $68 and $77 in the subsequent weeks.
Users develop their own in-game experience and also sell their creations., with the resulting revenue divided between the developer and Roblox. This model is different from most other game marketplaces which are dominated by game development studios.
With schools moving largely to virtual classrooms during the pandemic and a lack of outdoor activities, Roblox's tween and teen target market had little other entertainment options than video games. This helped sales to reach $923 million in 2020, an 82% year-on-year increase.
One concern is that there is uncertainty about how growth will be post-pandemic. While the global crisis wasn't the only reason for its 2020 success, it played a major role. While margins are currently low and it made a $253.3 million loss last year, Roblox is investing significantly in its business to fuel further growth. Once it is adequately scaled, it looks like it will have some beefier margins.
Which stock is a better buy right now?
Airbnb and Roblox both have competitive advantages in their respective sectors. The two companies look poised to continue generating significant levels of growth in the coming years. However, Roblox's current valuation looks a bit high and it might be better to take a wait-and-see approach before investing.
Airbnb also has a high valuation, but it is a more tried and tested company. It has navigated itself reasonably well through the pandemic and looks set to capitalize on a post-pandemic boom in travel. While its current price level appears to be a bit high, it would be a preferable investment over Roblox at the moment.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
