It is essentially a down round if they survive. The loan has warrants that can be converted to shares if their valuation goes above 18b which is half their previous valuation.

In essence they sold options on their equity that if they fail to reach the strike price they are stuck paying back a lot of debt.

An absolutely awful set of terms for them and more like a loan shark than a well planned financing motion.

They are clearly in an absolute existential crisis and ready to take what they can get. Management is at fault here for allowing this type of rail risk be uninsured somehow with more previous financing.

> Management is at fault here for allowing this type of rail risk be uninsured somehow with more previous financing.

Perhaps, but I just don't really see how any business can plan for a ~80% drop in revenue, worldwide, for months on end. I heard it phrased as "it's like there is a hurricane going on, everywhere, for months". Even the worst imaginable "normal" economic recession/depression wouldn't be this bad for AirBnB.

AirBnB has 2 options: they can lay off a shitload of people who are essentially doing very little right now (I'm sure they had a HUGE surge in people needing support when this all first started, but assuming that has shown greatly), but that means it will be extremely difficult to respond to a highly volatile situation, or they can put more has in their tank hoping to ride things out for 6-12 months.

Managing fat tail risk is only sexy after the fact. If your business is currently structured such that you are burning cash and have no profits or ways to effectively slow burn (like cutting dividends, laying non-essential staff that can quickly be recruited during recovery) then your business is at high risk of failing instantly when an event of 3 standard deviations or more takes hold.

If you’ve been running this business for a decade and have not thought about this, you’re negligent or incompetent. If anything the wool should be off everyone’s eyes that you’re not special - you’re just lucky to be there collecting a fat check doing what almost anyone could. Which is looking like a genius during a bull market.

your business is at high risk of failing instantly when an event of 3 standard deviations or more takes hold.

That’s 99.7th percentile if I understand you right. That seems like something reasonable to think about, and then accept the risk. It seems pretty bold to call them incompetent.

So says the peanut gallery.

> laying non-essential staff that can quickly be recruited during recovery

That's pretty much my point. AirBnB could lay off a ton of people to slow their burn, but if they can get financing, they don't have to. I'm not sure why you see that as a failing.

They were forced to sell a billion dollars worth of stock at half their previous valuation. And if they don’t succeed then they have to pay back a billion dollars at 10% interest.

So yeah I get they get to keep people and that’s good. But they were forced into making a bad deal. They’ve taken on 16% of their total raise to date and did it at half value. Someone got a potential 2 for 1.

Honestly I think this just shows how disgustingly ridiculous Airbnbs spend rate is. In theory they should be able to shut down a ton of operational expenses like advertising, customer support, etc and weather a storm like this with a combination of cash on hand and limited loans but their determination to light ever dollar they get on fire means they might go under.

If the demand crash is transitive, then it would cost a lot to rebuild all of those things. They've definitely done the math. The reality is this is a very expensive crises for them.

So what you're saying is that it's disgustingly ridiculous that they won't fire a bunch of people?

What of the employees?

Five days ago the Financial Times reported on Airbnb lowering its internal valuation from $31 billion to $26 billion.

They also mentioned the delay of any IPO and said this:

>The push to go public was motivated, in part, by expiring stock options held by staff.

What happens to the employees in this situation?

They have to take out loans and exercise their options before they expire.

Not true. Most options expire 10 years from grant date regardless of your employment status. This means fully vested option holders have 6 years from grant to exercise.

Yep, and according to things I've previously read, AirBnb switched to RSUs in 2014 and those all have a 7 year expiration date.

I'm only familiar with RSUs in a public company, how can an RSU expire after vest? I thought once it lapses you simply own a share.

Probably some sort of double trigger RSU, where the trigger event is likely an IPO or acquisition.

Taxes. If company is not public, and the RSU converts, employees are hit with 30-50% income tax for the stock value you cannot easily sell.

I thought AirBNB was recently claiming to have more than $1Bn in Cash on Hand. This seems like an extreme measure that wouldn't make sense if they actually did have that much cash -- right??

It is probably because travel will take a lot longer to come back than most of us expect. This is because travel is probably one of the prime ways covid-19 can start spreading again and governments will be very leery of any activity that will restart the spread.

I bet travel will be restricted till there is a vaccine yet no vaccine is in sight. Perhaps in the meantime you will be forced to take a covid-19 test before boarding and when you come back?

So you should expect AirBnB to lose virtually all its business till major tourist centers and sources of tourism have stabilized. And you should expect that it won't come close to recovering till there is a vaccine.

Then you have to add on that travel is discretionary and given the economic shock, travel will be the first to fall and last to recover.

So months to recovering some and then no full recovery till a vaccine is found (> 6 months to year(s)). One good proxy is the Olympics. It's been postponed to July of next year.

I bet their burn rate with ~12000 employees is >>1B per year.

I would expect a lot of attrition among their host base even after (if?) tourism recovers, so it's going to take a year at a minimum.

In my area former hosts are already switching to the long-term rental market.

Which is good IMO, because AirBnB has had a terrible effect on the availability of affordable rentals.

In fact AirBnB are reliant on cheap air travel, and that's going to be badly hit. Lufthansa shuttered their budget Germanwings brand today, and a lot of budget carriers will be gone a few months from now.

Given a general economic contraction and shake out, I doubt the cheap flights industry is going to recover to anything like its former volumes within 5-10 years.

One of my favorite studies: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3006832

> "A 1% increase in Airbnb listings leads to a 0.018% increase in rents and a 0.026% increase in house prices."

In a lot of markets, AirBNB listings doubled (or more) for years. That could easily account for most of the REAL increases in rents and house prices in those markets.

But economies reliant on travel will be itching to declare "everything is well, come visit us!". Probably visitors will be wary, especially if they consider whether they'd want to be sick in their destination country.

Governments that are sources of tourists rather than destinations are going to be less eager to open things up.

And who will want to travel if you know you have to self-isolate for 2 weeks after you return?

I disagree with your thesis. When coronavirus was extant only in specific geographic hotspots, limiting travel makes sense. However, when it's present across the entire world at a low level - which seems quite likely to occur within the next month or two - then people traveling between regions is not going to increase the spread that much.

Right now it makes sense to tell people to stay in their homes. Once you lift that restriction, whether they're leaving their home to travel 20 miles or 1,000 miles is not that relevant.

Travel will be limited only as much as overall economic activity is limited, and there's no way we can maintain the current level of restrictions for the ~18 months it will take for a vaccine to become available.

If the countries are trying to do contact tracing and isolated quarantines where flare-ups are found, it absolutely matters.

This is what people are talking about at the moment when they mention easing lockdown restrictions.

Imagine a single government trying to get the word out to everyone who may have come into close contact with someone who flies from London to Berlin on a Friday, jumps on a train at the airport, parties for 48 hours, flies home on the Monday and feels ill/gets tested the following Wednesday. Then replace Berlin with "Liverpool" and see how that improves things.

Shoving a bunch of people in a small space for multiple hours to go to other crowded spaces with people from all over the world and then returning home with a bunch of other people in a crowded tube...

Tourism in my nearest city (Oxford, UK) had plummeted before any travel restrictions were in place. My guess is it won't come back very quickly after they are lifted.

Whoa, why do they need 12,000 employees? I'm seriously trying to figure out why they need so many.

If they expect to have $500M cash on hand next quarter [1] and still need the money, then it's much easier to raise it at 10% now than take their chances then when they're in a much worse position.

[1] Seems fairly likely given their employee count and cash burn.

Well, I certainly expect their CFO did the arithmetic and found that their best path forward is to do this deal. It could be they can survive here for quite awhile and just burn cash. But if this pandemic goes on and on for 18 months they’d be in serious trouble.

So maybe this is asking for cash before it’s too late? Maybe this is the insurance they’re now buying.

Airbnb is in a LOT of trouble if this pandemic fear persists for a while. Forget the obvious drop in casual travel, it's going to be hard to compete with hotels that can claim 100% control over their properties.

I can already picture the Mariott ads promising "100% sanitized rooms and common areas".

Can Airbnb guarantee the same? Not by a long shot.

Agreed. And hotels have political capital. Hell, the president is a hotel guy himself. They are getting bailed out. AirBnB is not.

Hotel companies that are solvent and can use this money as leverage will have an opening to eat AirBnB’s lunch.

Probably true on the control and more flexibility in dealing with this by the hotel chains. But if this pandemic lasts for 18 months, they'd all be in serious trouble too.

yea, its def a risk play.

Lets say they can make it 12 months with cash on hand, what does the funding env look like in 12 months?

There is def someone with a big spreadsheet who has modeled this out and decided this was the best path forward.

Thanks for the clarification. I didn’t see the details, especially about the warrants.

Honestly this sucks. AirBnB is a great product and company.

What does this do to those with exercised options?

Well nothing at this point so the market illiquid for them. But if you can somehow sell the shares they’re probably worth a lot less than they were a month ago.

It’s hard to tell since the share are illiquid, but I’d strongly suspect the valuation (ie current share price) just dropped. The question, is how much.

If only there were a way to short privately held companies.