Airbnb’s Coronavirus Crisis: Burning Cash, Angry
Hosts and an Uncertain Future
With travel nearly at a standstill, the home-sharing
giant is facing increasing losses and doubts about its planned public listing
By Kirsten
Grind, Jean Eaglesham and Preetika Rana
April 8,
2020 1:11 pm ET
Everything
was supposed to come together for Airbnb in 2020.
The hottest
stock-market debut of the year. A valuation of more than $50 billion. Riches
for hundreds of employees holding options expiring at year-end. And vindication
for co-founder and Chief Executive Brian Chesky’s decision not to go public
earlier.
The
coronavirus pandemic has made all those scenarios next to impossible.
With global
travel nearly at a standstill, the home-sharing giant is expected to lose $1
billion through the first half of the year, and its private-market valuation is
dropping, according to people familiar with the company’s finances. On a
videoconference with employees in late March, someone asked whether layoffs
were coming. “Everything is on the table,” Mr. Chesky responded.
On Monday,
the company said it was raising $1 billion from private-equity firms Silver
Lake and Sixth Street Partners to bolster its financing. The funding comes at a
steep price: $1 billion of debt with an interest rate of more than 10%, The
Wall Street Journal reported Tuesday. Some investors declined to put in new
money after Airbnb said it wouldn’t replace Mr. Chesky as chief executive,
while others didn’t participate because they didn’t think the terms were
favorable, according to people familiar with the terms of the deal. Silver Lake
and Sixth Street Partners said they had faith in the business and existing
leadership team.
Airbnb
hasn’t addressed its plans for a public offering, but some of its investors
don’t believe it will happen this year. “There’s no way,” said Matt Novak, a
partner at London-based All Blue Capital.
Airbnb is
now weighing plans to raise as much as $1 billion more in new financing, said
the people familiar with the matter.
Meanwhile,
confusion over cancellation policies at its seven million properties world-wide
is fraying relationships with its guests and hosts. After guests complained
about not being able to get full refunds for bookings in quarantined cities,
Mr. Chesky approved a plan to refund guest stays booked through mid-May. That
infuriated property owners who saw revenue evaporate.
The Journal
sought comment from Airbnb on the details of this article and requested an
interview with Mr. Chesky. Nick Papas, an Airbnb spokesman, characterized the
Journal’s reporting as “wildly inaccurate and wrong,” without providing any
specifics.
After a
version of this article was first published, Airbnb said it disputed multiple
aspects of it, including any suggestion that the board is divided or that
investors have pushed for management or major operational changes. “Our Board
and management have been united on our path forward,” Mr. Papas said in a
statement.
Whether
Airbnb can rebound fully from the coronavirus catastrophe—and how quickly—will
depend in part on how consumers feel about traveling and staying in other
people’s homes once the pandemic eases. Some analysts say Airbnb might benefit
if more people decide to avoid more crowded hotels. Others say hotels might
gain an advantage if people think they are cleaner.
Airbnb
executives and investors express confidence the company will recover. Mr.
Chesky has cited Puerto Rico, where booking volumes bounced back swiftly after
a hurricane devastated the island, to try to persuade bankers and employees of
the resilience of his business model, said one person familiar with the recent
capital-raising effort. The company said on Monday it will now focus more on
long-term stays such as students needing housing or executives on work trips.
Airbnb told
the Journal last month it has a capital cushion of about $4 billion.
Nevertheless, its board and investors are increasingly concerned about what
happens if the pandemic lasts months longer and the company’s revenues don’t
bounce back in the second half of this year.
Airbnb
could have gone public in 2018 at a value estimated by its bankers at between
$50 billion and $70 billion, according to a presentation from bankers. Mr.
Chesky and his two co-founders—Joe Gebbia and Nate Blecharczyk—ultimately opted
against it, according to people who were there at the time, believing that
Airbnb would perform better as a private company out of the spotlight.
In March,
as the pandemic began gaining momentum in the U.S. and across Europe, Mr.
Chesky told employees the company still plans to go public this year.
Valuation
hit
Airbnb’s
valuation, in the private secondary market for shares held by early investors,
has dropped from $150 per share a few weeks ago to under $90 a share, valuing
the company at less than $30 billion. “The plane’s losing altitude,” said Paul
Maguire, managing partner of Iron Edge VC, which executes secondary trades.
“Early investors are trying to see what kind of luggage they can throw out
there to lighten their load.”
When the
company was considering a 2018 IPO, its bankers projected it would be
profitable by now. Instead, as costs climbed, Airbnb lost $674 million last
year, according to company documents.
Mr. Chesky,
a former art student and amateur bodybuilder, co-founded the company in 2008,
eventually enlisting millions of property owners around the world to rent out
their homes and apartments. Airbnb has become the largest home-sharing site in
the U.S. and a major player internationally.
As it grew,
the company spent big. Its total costs rose to $5.3 billion last year, from
$2.6 billion in 2017, outstripping an 85% increase in revenue over the same
period, from $2.6 billion to $4.8 billion, according to a copy of its financial
statements.
Administrative
costs increased 113% between 2017 and 2019 as the company hired thousands of
employees and built out a corporate headquarters in the trendy San Francisco
neighborhood known as SOMA, or “South of Market.” As Airbnb struggled to police
crime on its platform, spending on safety also has increased, the Journal has
reported.
By the
beginning of this year, some Airbnb board members were pressuring Mr. Chesky to
cut costs, according to people familiar with the discussions.
When the
coronavirus hit China and then Europe, Airbnb’s bookings plummeted. In Beijing,
little more than 1,600 bookings were made between March 1 and March 7, down 96%
from the Jan. 5 to Jan. 11 period, according to AirDNA, an analytics firm that
tracks the short-term rental market.
Internally,
Mr. Chesky projected an air of calm. At the company’s monthly staff meeting on
March 5, he reassured employees that everything would be all right, according
to two employees.
Guests
around the world canceled reservations as travel restrictions spread and the
U.S. advised Americans to avoid all trips.
In College
Station, Texas, Alexia Hernandez needed to cancel an Airbnb reservation she had
made in mid-March for a four-day stay in Malaga, Spain, in May.
Her host
refused to refund the full amount, offering to pay 50% because, he said, it
would likely be safe to travel by the time of her trip, according to texts
exchanged between them.
Ms.
Hernandez said she couldn’t believe it. “It would not be safe for me to go to
Spain,” she said. She said she tried canceling through an online portal set up
by Airbnb, but her host still denied the request. Airbnb ultimately refunded
her the full amount after she posted her frustrations on Twitter.
The company
spokesman said after the company introduced a new cancellation policy, “we
proactively reached out to this guest to ensure she received a refund.”
New policy
Mr. Chesky
approved the rollout of the new policy: Airbnb would refund any stay booked on
or before March 14, with a check-in date between March 14 and April 14. Airbnb
later extended the check-in date to May 31. The move was a drastic overhaul of
the company’s longtime practice of allowing hosts to set their own cancellation
policies and stick to them, no matter what the circumstances.
He didn’t
notify board members before making the change, according to people familiar
with the situation. Some were miffed they weren’t consulted and felt the
decision to pay cancellation fees was hasty, these people said.
Some board
members, led by independent directors Kenneth Chenault, the former American
Express chief executive, and former Disney executive Ann Mather, intensified
their push to get Mr. Chesky to cut costs, according to people familiar with
the board.
Among the
cuts they were pushing was one project favored by Mr. Chesky, Airbnb
Experiences, which allows guests to book outings, according to people familiar
with the discussions. While the unit was supposed to be profitable by 2019, it
has racked up losses totaling nearly $1 billion, these people said. In the
announcement of its new funding Monday, Airbnb said it was sticking by the
division. The company spokesman said the losses are a “small fraction” of
nearly $1 billion.
Other cuts
under consideration by Airbnb’s board include the company’s print magazine,
Airbnb Magazine.
By late
March, Airbnb reservations across the country dropped 80% from about 500,000 a
week on March 1 to about 100,000 by the end of the month, according to AirDNA.
Airbnb’s
board decided the company needed to raise more money and cut costs, according
to people familiar with the board discussions. Bankers from Morgan Stanley were
appointed to lead fundraising efforts.
Some
investors said they would put up money only if Mr. Chesky reduced his voting
control and either relinquished his CEO job or work alongside a turnaround
executive, the people familiar with the deal negotiations said.
Airbnb is
taking on the $1 billion of new debt announced Monday at a rate of interest
often associated with distressed companies: a benchmark known as the London
interbank offered rate, or Libor, plus 10%, the people familiar with the
negotiations said. If Airbnb goes public, investors will have the option of
being repaid in shares or cash, the people said.
The
investors are getting warrants that can be converted into shares based on a
valuation for Airbnb of $18 billion—sharply lower than the $31 billion
valuation in the company’s last fundraising round in 2017, the people familiar
with the negotiations said.
In
Charleston, S.C., longtime Airbnb host Travis Lee Odell makes upward of $30,000
a year renting out a studio attached to his house. He was furious about the new
cancellation policy because the company hadn’t consulted hosts. He said he
tried calling Airbnb, but was told the wait time was about six hours.
On March
30, Airbnb said it would spend $250 million to help reimburse hosts and
launched a $10 million fund to help them pay their mortgages. The company
successfully lobbied Congress to include hosts in its stimulus package.
In a video
streamed from his residence the same day, Mr. Chesky apologized. Over time, he
said, the company had become distant from its hosts. He pledged to listen.
“We’ve
heard your frustrations,” he said. “We are nothing without you hosts. You are
our lifeblood.”
Mr. Odell
said Airbnb should have pledged at least $200 million more. Airbnb said it
would give its hosts 25% of what they would have received for a canceled
booking between March 14 and May 31.
“It’s like
putting a Band-Aid over a gaping compound fracture,” he said. Vrbo, a competing
online rental platform that he sometimes lists on, didn’t change its
cancellation policy, he pointed out, though in that case guests are furious the
company isn’t reimbursing them.
The Monday
deal included $5 million more for the mortgage relief fund.
In late
March, Mr. Chesky told employees from around the world via streaming service
AirTV that the company would cut marketing expenses to save up to $800 million,
according to one person who was listening. Pay would be slashed in half for top
executives.
Mr. Chesky,
who late last year was said to be worth more than $3 billion, is among those
planning to forgo a salary for the next six months.
—Jim
Oberman contributed to this article.
Write to
Kirsten Grind at kirsten.grind@wsj.com, Jean Eaglesham at
jean.eaglesham@wsj.com and Preetika Rana at preetika.rana@wsj.com
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