Institutional investors may take tough action after Airbnb, Inc.’s (NASDAQ:ABNB) latest 14% drop adds to year-long losses
To get an idea of who actually controls Airbnb, Inc. (NASDAQ: ABNB), it is important to understand the ownership structure of the business. And the group that holds the biggest slice of the pie are institutions with 41% ownership. In other words, the group faces the maximum upside potential (or downside risk).
It follows that institutional investors were the hardest hit group after the company’s market capitalization fell to $65 billion last week following a 14% drop in the share price. Needless to say, the recent loss on top of shareholders’ year-on-year loss of 42% might not go down well, especially with this class of shareholders. Also called “smart money”, institutions have a big influence on how the price of a stock moves. Therefore, if the decline continues, institutional investors could be forced to sell Airbnb, which could hurt individual investors.
In the table below, we zoom in on Airbnb’s different ownership groups.
What does institutional ownership tell us about Airbnb?
Institutional investors typically compare their own returns to the returns of a commonly tracked index. They therefore generally consider buying larger companies that are included in the relevant benchmark.
Airbnb already has institutions on the stock register. Indeed, they hold a respectable stake in the company. This suggests some credibility with professional investors. But we cannot rely solely on this fact since institutions sometimes make bad investments, like everyone else. It is not uncommon to see a sharp decline in the stock price if two large institutional investors attempt to sell a stock at the same time. So it’s worth checking Airbnb’s past revenue trajectory (below). Of course, keep in mind that there are other factors to consider as well.
We note that hedge funds have no significant investment in Airbnb. Looking at our data, we can see that the largest shareholder is CEO Brian Chesky with 10% of the shares outstanding. For context, the second shareholder owns approximately 9.8% of the outstanding shares, followed by a 9.4% ownership by the third shareholder. Note that two of the top three shareholders are also Top Key Executive and Board Member, respectively, again highlighting the significant participation of company insiders.
We also observed that the top 9 shareholders represent more than half of the share register, with some small shareholders to balance the interests of the larger ones to some extent.
While studying the institutional ownership of a company can add value to your research, it is also recommended that you research analyst recommendations to better understand a stock’s expected performance. A number of analysts cover the stock, so you can look at growth forecasts quite easily.
Airbnb Insider Ownership
The definition of an insider may differ slightly from country to country, but board members still matter. The management of the company runs the company, but the CEO will answer to the board of directors, even if he is a member of it.
Insider ownership is positive when it signals that executives think like the true owners of the company. However, strong insider ownership can also give immense power to a small group within the company. This can be negative in certain circumstances.
Insiders appear to own a large share of Airbnb, Inc. Insiders own $20 billion worth of stock in the $65 billion company. It is quite significant. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if these insiders have been buying or selling.
General public property
With a 20% stake, the general public, consisting mostly of individual investors, has some influence on Airbnb. This size of ownership, although considerable, may not be sufficient to change company policy if the decision is not in line with other major shareholders.
Private equity ownership
With a 7.4% stake, private equity firms could influence Airbnb’s board. Some investors might be encouraged by this, as private equity is sometimes able to encourage strategies that help the market see the value of the company. Alternatively, these holders could exit the investment after making it public.
While it is worth considering the different groups that own a business, there are other, even more important factors. Take for example the ubiquitous specter of investment risk. We have identified 1 warning sign with Airbnb and understanding them should be part of your investment process.
If you’re like me, you might want to ask yourself if this business will grow or shrink. Fortunately, you can check this free report showing analysts’ predictions for its future.
NB: The figures in this article are calculated using trailing twelve month data, which refers to the 12 month period ending on the last day of the month the financial statements are dated. This may not be consistent with the annual report figures for the full year.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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