Is Airbnb (ABNB) a great equity investment?

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Worm Capital LLC, an investment management firm, has published its letter to investors “Longleaf Partners Small-Cap Fund” for the second quarter of 2021 – a copy of which can be found downloaded here. A quarterly portfolio return of -15.18% net of fees was recorded by Worm Capital’s long / short equity growth strategy for the second half of 2021, and of -1.49% for its long-only equity strategy, while than its benchmark, the S&P 500 Index, by comparison, returned 15.25% over the same period. You can check out the top 5 holdings of the fund to get an idea of ​​their top bets for 2021.

In Worm Capital’s Q2 2021 letter to investors, the fund mentioned Airbnb, Inc. (NASDAQ: ABNB) and discussed his position on the company. Airbnb, Inc. is a San Francisco, California-based vacation rental company that currently has a market capitalization of $ 92.6 billion. ABNB has returned 2.17% year-to-date, while its 3-month yields are down -0.81%. The stock closed at $ 149.99 per share on August 5, 2021.

Here’s what Worm Capital has to say about Airbnb, Inc. in its Q2 2021 letter to investors:

“Throughout the quarter, you may have noticed that we were on average in a significant position in Airbnb (ABNB). While the stock has been relatively underperforming since its February highs, we are very confident about the outlook for the company and its ability to generate significant compound returns over time.

A bit of history: We’ve been following Airbnb’s journey for several years, well before the company went public earlier this year. (In fact, nine years ago, in November 2012, Eric introduced the company for Inc .: “Airbnb Is Changing Travel.”)

Whenever we make a new investment, we look for a few key attributes that help us determine the potential long-term value of a business, as well as its risks. In particular, we focus on management (Are they founders? Do they have the skin of the game? Do they play the long game?), The size of the addressable market (What is the opportunity?), Its relative growth and its creativity to develop (Are they constantly innovating to make the product better for their customers?), the expansion of the margin (Where can we find an operational lever in the model?), its status in the industry (Are they the dominant player? Can they take market share from incumbents?), Business risks (What are we missing? Are customers dissatisfied? What are employees saying?) And probably a dozen other things that are essential to our process. Only then do we take out the pencils to do the assessment work.

In short, ABNB fulfills pretty much all the elements of a business model that we’re interested in: First, it is a highly scalable, market-based business model that unites buyer and seller with effects. of observable flywheels. (This is an important observation, as the platform creates significant economic value for millions of hosts who rely on Airbnb, which in turn attracts new hosts who identify the opportunity, which creates more inventory, which attracts more travelers, which attracts more hosts, and soon.) Second, it has a global focus with significant opportunities to expand its operating leverage; Third, its management, which is still led by its founders, appears to us as long-term thinkers capable of managing crises, which the team has demonstrated throughout the pandemic by reducing operating costs and transforming the company into a more efficient and lean organization. (As Churchill said, “Never let a good crisis go to waste.”).

Airbnb, House, Rent, Real estate

photo by Andrea Davis to Unsplash

Based on our calculations, Airbnb, Inc. (NASDAQ: ABNB) was unable to land a spot on our list of the 30 most popular stocks among hedge funds. ABNB was in 52 hedge fund portfolios at the end of the first quarter of 2021, compared to 68 fund in the fourth quarter of 2020. Airbnb, Inc. (NASDAQ: ABNB) generated a return of 0.23% in the past month.

The reputation of hedge funds as savvy investors has been tarnished over the past decade, as their hedged returns could not keep up with the unhedged returns of stock indices. Our research has shown that small cap hedge fund stock selection managed to beat the market by double digits every year between 1999 and 2016, but the margin for outperformance has shrunk in recent years. Nonetheless, we were still able to identify in advance a select group of hedge funds that have outperformed S&P 500 ETFs by 115 percentage points since March 2017 (see details here). We were also able to identify in advance a select group of hedge funds that underperformed the market by 10 percentage points per year between 2006 and 2017. Interestingly, the margin of underperformance of these stocks has increased in recent years. Investors who are long in the market and short on these stocks would have reported more than 27% per year between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next big investing idea. For example, the pet market is growing at an annual rate of 7% and is expected to reach $ 110 billion in 2021. So we take a look at the 5 best stocks for animal lovers. We go through lists like the 10 best battery stocks to choose the next Tesla which will offer a 10x return. Even though we only recommend positions in a tiny fraction of the companies we analyze, we check as many stocks as possible. We read letters from hedge fund investors and listen to equity pitches at hedge fund conferences. You can subscribe to our free daily newsletter at our home page.

Disclosure: none. This article was originally published on Monkey initiate.


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