Airbnb Shares Slide Following IPO Lockup Expiration: What You Need To Know

Airbnb, Inc. ABNB shares were moving sharply lower Monday on above-average trading volume.

What Happened: The lockup period for the shares of the home rental platform, which went public in early December, expired  Monday.

The company said in its preliminary prospectus filed with the SEC ahead of its IPO that the lockup would expire at the opening of trading on the second trading day immediately following the public release of earnings for the first quarter.

Airbnb reported Thursday after the market close with first-quarter results that showed a 5% year-over-year increase in revenue and over 50% bookings growth as travel rebounded amid the introduction of coronavirus vaccines. The loss per share narrowed from $1.95 to $1.30.

The company also said it would make a significant announcement on May 24 that it said would be the most comprehensive update to its service in 12 years.

Related Link: How to Buy Airbnb (ABNB) Stock

Why It's Important: Airbnb went public in December by offering 51.552 million shares at a price of $68 each. The stock had a strong debut, as it was listed at $146 and ended the session at $144.71, up about 113% from the IPO price.

The stock has come off from the $219.94 peak it reached on Feb. 11. Although the first-quarter earnings report generated some buying in the stock on Friday, the lockup period expiration is exerting downward pressure. 

A lock-up period is mandated by SEC to prevent major shareholders from liquidating their stakes in the company immediately after an IPO. This is to ensure that prices are not depressed by the flooding of shares into the market and to avoid sending a wrong signal about the investment worthiness of the security.

Lockup expirations, therefore, lead to a sell-off in an equity given the increase in supply of shares.

The Sell-Side On Airbnb: The sell-side is largely bullish on Airbnb.

"The company is well-positioned to take advantage of pent-up travel demand around the world, with the return of both international and urban travel expected to support its recovery in 2H21, and Airbnb should continue to take share from traditional accommodations over time," Canaccord Genuity analysts said in a note following the quarterly results.

Needham analyst Bernie McTernan, who rates Airbnb a Buy, said he expects nearly $1 billion of adjusted EBITDA in 2021.

Raymond James' Aaron Kessler, though convinced of fundamental strength, expressed discomfort with Airbnb's valuation.

ABNB Price Action: At last check, Airbnb shares were down 6.52% to $132.

Related Link: Airbnb To Benefit From Changes To Travel Forced By Pandemic — Needham Initiates Coverage With $210 Price Target

An Airbnb at Joshua Tree National Park, California. Photo courtesy of Airbnb.