Airbnb Paying More Than 10% Interest on $1B Financing Announced Monday | Hacker News Reader

Airbnb Paying More Than 10% Interest on $1B Financing Announced Monday

wsj.com

189 pointsJumpCrisscross248 comments

To those asking how Airbnb could possible need that much money.

Wikipedia says they have 12,736 employees.

$1B works out to $78,518 per employee (before payroll taxes, health insurance, etc.).

So if you're trying not to lay people off and keep the company afloat while revenue has plummeted to next-to-nothing... it's not an absurd figure. Or even if you're laying people off, it's going to take $$$ to find and rehire and train people when revenue starts coming in again, while continuing to pay the management team and key employees that will be capable of executing on that, and keeping the lights on, and paying rent.

Granted almost 13K employees may sound like a lot... but let's say they operate in 50 countries and have a team of 100 people for each one building up the business, that's 5,000 employees already. I made those specific numbers up, but for a global-local company, it's not crazy.

I wouldnt offer air bnb a billion for 10%. I dont think they can pay it back. I hope they can't pay it back. Dublin Ireland saw 67% more housing available overnight because air bnb home owners needed to offer their homes to long term stayers since the travel ban. They're a nuisance.

I think that's great that 67% of supply was quickly re-allocated. Imagine if this was a hotel. How many people would loose jobs and how many buildings would have to be demolished.

A hotel can tie up the resource of 100 places to live in temporarily inside one single building. Airbnb spreads that out to 50-100 separate places to live in. There's a difference, don't you think?

Sure, economy of scale should prevail and hotels should be cheaper. But they aren't.

For C19 unsure what's better. Cramped place or randomly distributed. I hear cruise ships are not very popular at the moment.

Empty hotels have the same CPVID19 effect as empty AirBNBs.

In fact, empty hotels are serving very important roles right now around the world housing homeless and quarantined people and travelers.

Finally there is no comparison between a hote and a cruise ship. Travelers in hotels, much like Airbnbs, are all back at their homes. The problem with cruise ships is that they cannot easily get back to wherever they’re from.

The problem is the lack of new construction leading to limited supply of housing, not AirBnB.

Worldwide housing supply is never going to keep up with radical changes in usage. One takes literally trillions of dollars worth of construction in not just housing but also transportation etc, the other takes a website.

Well yes, but also no. I would hope that it's not terribly surprising that just about any property in a major metro area is going to earn more revenue on average as a series of short term rentals than a long-term tenant or sale. I mean that's pretty much the standard trade you make for lots of things. You accept lower rates in exchange for lower risk and more consistent revenue.

Airbnb did a weird thing and proved/facilitated so much demand that landlords realized that listing on Airbnb could net you that increased profit with lower risk since they provide a steady stream of renters changing the risk/reward profile.

So we're left with some awkwardness of people being priced out of their apartments not because of anything evil but because Airbnb et al close that information gap and proved that short-term rentals aren't nearly as risky as landlords thought and that forking over 30% for customer acquisition still works out in their favor.

I think you’re leaving out the key aspect of Airbnb’s move, which is to transform a large amount of housing into hotels without appropriate regulation. That’s what enables it to be so profitable.

Right but that's an orthogonal issue to what the market will pay for a given property. I agree that a lot of the draw of Airbnb is that it's cheaper than hotels but this is the case where the current crop of regulations are harmful since people on Airbnb know exactly what they're getting. The regulations aren't addressing any information/knowledge asymmetry or safety concerns that aren't covered in "this is just some randos house" disclaimer. I'm sure that helps Airbnb's funnel but I doubt the absence of hotel regulations would make the current crop of hotels any cheaper since the regulations are tailor made for what they were doing already. Yayy regulatory capture. Right! Back on topic. But none of this matters because we're not comparing hotels to Airbnb, we're comparing Airbnb to renting or selling which is a different batch of zoning regulations they're skirting.

But that reinforces my point since the reason that city planners zone properties/areas for long-term residential only sans a few excepted hotels is keep the prices down to levels that individuals and families can actually afford because you're only competing with other people in your rough income range and not commercial buyers. So I don't see a contradiction in cities just banning Airbnb like any other commercial activity for that reason but it's all like artificial mannn.

Also current situation shows there is a 100 year risk that will likely return the average risk of short term renting to the original (pre AirBnB) value. So in a Long enough time frame AirBnB didn‘t change anything?

I once stayed at an Airbnb condo in Toronto that was relatively new. I saw many, many tourists coming in and out of the building, the lobby looked like a hotel with about 20 different groups with luggage, etc. It looks like this entire condo was mainly for investment purposes and for people to Airbnb these condos out. It's not surprising that Dublin saw a huge increase in rentals and I bet the same thing has happened across the world.

I’ve been hearing people say this for years, and it is certainly an easy and nice line to say. But supply for new housing is not the solution or the issue.

1. When new housing enters the market it is priced at “fair market value”. That fair market value is inflated by numerous known and unknown factors. Such as foreign investors, short-term rentals, etc...

2. Cost of construction follows the trend and what used to cost X to build is now 2x, 3x.

3. Numerous cities have reduced pricing of permits and have even simplified the planning approval process for homes in an effort to attract imvestors and developers.

4. Cost of land is at an all time high. Which again is a factor of the fair market value. Land owners are wanting to sell to large development projects that have investors. Developers are bidding against each other to secure land.

Those and more are compounded into a complex relationship that has created a market that very few people can afford to live in. Is it possible that the fear of being priced out is driving a lot of these motivations?

According to Berlin 5€ per m² is a fair market value for a 50+ year old apartment. It's obvious that new construction can never reach a price that is this absurdly low.

I've never understood this focus on rental pricing. The problem has never been the price, how can prices constantly go up if nobody can afford them? Well, the answer is that someone can actually afford the price and for some reason you are competing with that person that is far more richer than you. Remember one of the core causes of inflation? Too much money chasing too few goods? It's not just printing an excessive amount of money that is necessary to cause inflation. You also need a shortage of goods. You need to have more people than housing to cause inflation of rental prices. If there are 10 houses but 15 people then you can be assured that landlords will only care about renters with high incomes and construction companies will focus on building for these high income people first and only after there is enough housing will they build housing for the less wealthy residents.

Does this imply I can build a 100-100m2-flat-house for 50000 EUR? How many 0 digits did you miss?

I think parent meant 5EUR/m^2/month?

#1 #3 #4 are all related to "supply of new housing"

Airbnb clearly feeds into the limiting of supply.

This is only true if Airbnb creates demand for owner-absent short term house lets. Otherwise it's just a platform taking market share from other platforms like VRBO or Craigslist and the amount of housing supply would be the same with or without Airbnb.

And of course it is the latter. The great majority of listings on the platform are for owner occupied dwellings where a room, loft, basement, or guest house is being let out. This does not keep supply of housing suppressed.

Sure it does, because absent AirBnB those rooms might be let out to long-term lodgers.

How can you determine that the 67% is due to Airbnb shutting down as opposed to all the other current insanity?

What other effect besides travel restrictions would effect housing supply as quickly as in a month?

I suppose that no landlord would have been able to kick out a tenant short on a month of rent in Ireland.

Hmmmm, what else changed in that period... I can't think of anything. Other than airbnb's drying up, my life is about the same as it was a few months ago. There are so many things that have changed in that period, it's nearly impossible to make a strong argument that any one change caused any one other change. In stats speak, the exclusion restriction you'd usually require for this kind of statement is not valid here.

For starters, a bunch of people losing their jobs would give up their highly-priced city rental that was close to work.

Not everyone actually wants to pay the premium for city life, and once the job doesn't tie them there they can quickly leave.

Many of the shelter-in-place orders have banned anything not essential, like groceries or other supplies. That includes moving.

How did the supply dry up so fast when no one is to leave their houses? It has to be AirBnB/travel bans; even the 2008 housing bubble 'asplosion didn't move that fast.

The 2008 collapse didn't leave nearly so many jobless. I assume you've seen the unprecedented unemployment claim charts? https://www.cnn.com/2020/04/02/economy/unemployment-benefits...

It's all beside the point. You'd have to refute literally every single other possible cause to establish that airbnb was the culprit here.

As someone living in an area that is frequented by AirBnB travellers, mostly young people who want to party, I agree. This house has become a pain.

You think no one would simply fill the void if they go away? That model is here to stay for the foreseeable future.

One of the fun things about governments is their ability to ban things they don’t want and punish those who flout the ban with fines or imprisonment.

Such things are not perfect, naturally, but any popular website listing property does literally let the government know which house to confiscate, if fines don’t get paid.

FWIW -- according to LinkedIn, they have 14554 employees, with the top two functions being: 1. Arts & Design (3365 employees) 2. Engineering (1990 employees)

I see these numbers sometimes and it’s a bit staggering.

Why does AirBNB need 2000 engineers to display houses for rent in two phone apps and website? Kind of amazing.

There are entire companies that successfully run far more complex businesses with less than 2,000 people.

I always read this comment and and amazed how people here underestimate the complexity of running a large business with global reach and billions of dollars in transactions. Airbnb is in >100 countries and uses home grown payment system. Now imagine the number of currencies it needs to process and number of finance and tax laws that it needs to follow. Also, when you have traffic at Airbnb's scale, architecture and engineering becomes competitive advantage. Every millisecond of performance improvement or every last % of latency improvements lead to dollars. Finally, Airbnb is heavily regulated at the regional and city level. So I am assuming they require army of lawyers and ops people at these regions to comply. This is a start, and I haven't even touched the customer support side or defense against fraud and other malicious actors.

> Every millisecond of performance improvement or every last % of latency improvements lead to dollars.

I just pulled up their front page for Vancouver and it took 3 seconds to load completely. Just the initial HTML server time was over 1 second.

It's gotten amazingly slow while it used to set example for other sites.

That said, most real estate related sites suck very badly. It's almost like everyone should stick to a single platform or smth.

Look at hotels.com, which in many ways is comparable. It has around 1000 employees (one thousand). From wikipedia:

Hotels.com has 85 websites in 34 languages, and lists over 325,000 hotels in approximately 19,000 locations.

Going back to your comments, you could rephrase some of the earlier comments as: why on earth would you need millisecond performance improvements for a website/product listing rentals?

Hotels.com is part of Expedia group. Expedia has 25k employees.

Millisecond improvement is needed because travel is commodity and bounce rate is very high. If website doesn't load in time, visitors bounce off to other providers

Ok, so don’t use a home grown payments system, that sounds daft.

They have 2,000 engineers, not 2,000 employees. Employees are like 13,000.

In AirBNB's case the counterfactual actually exists, and you can check its performance. Craigslist.

Great server performance, terrible financial performance for the shareholders

Lots of custom build HR and Sales tooling would be my guess. Also data sciency stuff (i.e. basic analytics pipelines that poop out pretty graphs for the c-levels).

One thing is good sure. It’s not the sport topping or employees

Damn they really have more engineers than stripe has employees

Sure, it's not like they have complex admin tools, customer service systems and lots of other internal systems...

> Arts & Design (3365 employees)

Wait what? I must be missing something major about their company structure. Any idea what these positions are? There's no way web or app design scales in a helpful way to 3000 designers.

Likely they're mostly photographers. Airbnb hires a lot of professional photographers to take listing photos. Here's an example job posting: https://careers.airbnb.com/contractors/1404981/

But that posting is "freelance contractor" photographer which means they are not employees. Is AirBnb/LinkedIn counting non-employees in that ~3365 Arts & Design headcount?

Probably? I think it's self-reported. If I was mostly working for Airbnb as a photographer, I might put them as my employer on LinkedIn, freelance or no.

I was surprised myself, and I don't know what they're for. I have heard they are a design-driven company though. Also, they have a magazine (airbnbmag.com)

Might they rent out designers in a Client Services model, where they help owners take good pictures and basically tart up the property profiles?

I bet these are not majority employees, but contract photographers or even Airbnb hosts

Also, most people are missing that Airbnb is going to be paying some hosts a percentage of their lost revenue from canceled stays.

They are expecting to be bailed out, just like everyone else.

I realize the political nature of this topic, so please hear this question as sincere and not baiting / trolling: How is it a bail out if the government shut everything down to protect us from a pandemic? We’re intentionally pausing the economy, which will undoubtedly lead to a recession. Many of these companies were doing well financially prior to this disaster.

And I’m not defending AirBnB. I’m asking this about all companies. Isn’t this exactly the time our tax-funded government should step in and prop up successful companies, small, medium, and large.

What public service is Airbnb providing that they should be artificially sustained in the absence of a viable market instead of giving direct public financial support to their employees?

Ok I'll bite: they provide a marketplace for people to list and book rentals. You may not like it but it's what they do.

Yes I know what they do. That wasn’t the question. I have used them, like many. But that doesn’t mean they should be sustained in the absence of a viable market. The employees should all be supported, like anyone who is living through this. No question. But the company? Why do we, as a society as a whole, need to sustain the company in the absence of a market? Someone else would create the same business again when there’s a market for it. If there is again.

This is a natural disaster, businesses shuttered before the government did anything because many people wisely started to quarantine themselves. So to be fair to the government, a lot of shutting down was happening anyway.

Being a natural disaster, I think the fairest characterization of the money is a relief effort, just as if a hurricane had struck.

A bailout is a fair term if the market screws up, as in the 2007 financial crisis due to subprime mortgages. Though the causes were complex, people were selling dodgy financial products that obscured value and risk.

In this case, many companies are adapting to a big shock quite well because of automation and delivery, but there are a ton of businesses that closed because they have a face to face business model.

I cant speak about AirBnB, but the reason bailouts are unpopular with some companies...say...airline companies is because they purposely implemented stock buy-backs and wasted most their reserve cash chasing EPS. Now they come for money. How is that fair to other companies which remained cautious and maintained cash reserves?

Are you saying every airline should have held cash reserves (really more likely to be bonds or other investments) sufficient to sustain them through a total wipeout of their entire customer base for months on end? A scenario that has never happened before in the history of commercial aviation?

Resources tied up in cash buffers are resources not deployed elsewhere, after all.

There's a great thread on Twitter about this, written by a professor of economics:

https://mobile.twitter.com/PerBylund/status/1247624230021271...

The argument seems to be that because the government adopted business operating, they should get a hand.

I'm not sure I buy that. When you're a business owner, you take risks. Also ones that you weren't explicit about.

Suppose the government creates a rule that adds paperwork, so that all businesses now need to pay more to fill in docs. That could easily be the thing that kills certain businesses. Should they get bailed out? This actually happened in my business.

I'm not sure I'd go that far. I think if there is a major, near-unforseeable danger that where public policy requires shutting down business, then I think Bylund has a fair point that it shouldn't be treated as "sucks to be you" entrepreneurial error.

But I also think there's a lot more gray area. What if you were exploiting the fact that something was illegal but not enforced? That doesn't seem to merit a bailout.

What if you were running on extremely tight margins so that a week of lost revenue for any reason, even a justified one like a pandemic, would shut you down? Again, doesn't seem to merit a bailout.

So Airbnb should be bailed out because government imposed the barriers by closing short term rentals.

No, if companies aren't allowed to fail then the economy is broken. Every time a company is bailed out it just incentives less accountability in the future. Besides, no one is going to bail out the small, or even medium sized companies despite what politicians say.

> How is it a bail out if the government shut everything down to protect us from a pandemic? We’re intentionally pausing the economy, which will undoubtedly lead to a recession. Many of these companies were doing well financially prior to this disaster.

I don't think it's a question of moral deserts; as you say, none of the businesses suffering right now are doing so because they did something irresponsible which blew up.

But the concern is that we likely can't bail out literally every business in the economy that's in trouble, in which case the choices we make should be driven by global societal utility. Eg, if the airline industry was destroyed, the economy would be far worse off post-crisis, so it's reasonable to keep airlines afloat to some degree.

> Isn’t this exactly the time our tax-funded government should step in and prop up successful companies, small, medium, and large.

Yes but that doesn't mean they should rescue companies that were a house of cards waiting to collapse before all of this started

I bet the hotel industry is lobbying pretty hard against that one.

These are the current going rates for junk bonds. There's nothing surprising about that. And yes, pretty sure that Airbnb does not deserve investment grade - I haven't seen their books but those that have and laid money for this loan clearly think it's a junk bond. Startups generally should not deserve investment grade, and generally should not raise debt at all if possible. What are you going to pay the interest with, your negative profits? You're a growing company, go raise equity.

https://fred.stlouisfed.org/series/BAMLH0A0HYM2EY

BTW, junk bonds can be pretty solid investments. $HYG for the ETFs era (beware: it has decent energy exposure).

> generally shouldn't raise debt, what are you going to pay the interest with, your negative profits? You should be raising equity.

And that's the reason why the SBA loans that are part of the stimulus package are not going to save the small businesses they are supposed to be saving.

Anyways, I can relate. I raised money through convertible notes instead of equity, because reasons. Then when we didn't do a valued round soon enough (2 years expiration), one of the investors called his note, sued, forced us into bankruptcy, bought the assets at auction, and is now suing me and my cofounder personally to repay his note.

So, never doing that again. Debt is not a very good financing tool for small businesses that are exposed to a lot of risk (almost all of them right now).

The SBA loans will be FORGIVEN if you spend them on rent and payroll.

Please excuse the all caps, but I think it's very important that this be as widely known as possible, so that someone doesn't let their business fail because they weren't aware of how this program works.

https://restaurant.org/Articles/News/How-the-CARES-Act-SBA-l...

The program is not perfect and there are restrictions, but if you qualify, this is basically a grant, not a loan. It uses the existing SBA loan infrastructure so that the money can be disbursed very quickly through commercial banks.

> it's very important that this be as widely known as possible, so that someone doesn't let their business fail because they weren't aware of how this program works.

Agreed. So let's clarify a few things.

For the loan to be forgiven, you first need to be able to get it. From NYTs SBA loans page[1]:

> You must apply through a bank or other lender, so start by contacting one you already have a relationship with. Many banks are imposing restrictions and choosing to work only with their existing business customers.

> The Treasury Department said the program would start taking applications on April 3, a week after the bill was signed into law. But the department didn’t give lenders necessary technical information until just hours before the program was scheduled to start — and lenders are still waiting for some key guidance and documents, bankers said. Many are still developing their application rules and systems.

Most businesses that need the loans have been closed for 2-3 weeks now and it will most likely take at least another 2-3 weeks for them to see any money from those loans in their bank accounts[0,1], if they are lucky enough to qualify. Very few can wait that long before having to close for good.

Then, if you are able to get a loan, there are very important limitations to forgiveness (from the link in your comment):

> Your forgiveness amount equals your total payroll costs multiplied by the average number of FTE employees you retained for the eight weeks following the date of your loan origination

> You must spend at least 75% of your loan on payroll.

From another, more recent, article[1]:

> The agency said that “not more than 25 percent” of the forgiven amount may be used for nonpayroll costs, like rent.

So you only get up to 8 weeks of payroll, from the moment you get the loan (it won't cover anything you already paid), and then at least 75% must be used for payroll. So for example a restaurant, is very unlikely to be able to meet those requirements, because they are barely employing anyone right now, and their biggest expense is their lease, which they won't be able to cover with 25% of the PPP loan that should be used for their payroll. The restaurant would then need another loan to pay the lease, but that's a super risky loan, both for them and for the bank - the bank will probably not approve them and if they did, it would be under very bad terms for the restaurant. Banks are not in the business of losing money.

0: https://money.com/sba-loans-stimulus-ppp-application-require...

1: https://www.nytimes.com/article/small-business-loans-stimulu...

> Most businesses that need the loans have been closed for 2-3 weeks now and it will most likely take at least another 2-3 weeks for them to see any money from those loans in their bank accounts[0,1], if they are lucky enough to qualify. Very few can wait that long before having to close for good.

I agree - but that wasn't the point you raised in your original post.

> So you only get up to 8 weeks of payroll, from the moment you get the loan (it won't cover anything you already paid), and then at least 75% must be used for payroll. So for example a restaurant, is very unlikely to be able to meet those requirements, because they are barely employing anyone right now, and their biggest expense is their lease, which they won't be able to cover with 25% of the PPP loan that should be used for their payroll.

The intent of the program would be for the restaurant to maintain their payroll at pre-shutdown levels, rehiring and paying their employees to do nothing if necessary.

> I agree - but that wasn't the point you raised in your original post.

The point is: debt/loans are not a silver bullet that will magically solve liquidity/solvency issues for small businesses. They come with important drawbacks and restrictions as well as legal liabilities. Buyer beware.

About the restaurants: what is the restaurant owners incentive to get a PPP loan? It doesn't really make sense to go through the pain of getting a loan, just to rehire/keep employees for 8 weeks doing nothing, while at the same time not being able to pay their rent/lease, and having no idea when/if they'll be able to reopen.

Debt + high business uncertainty is a bad combo.

Please name the investor so we can avoid working with them.

> And that's the reason why the SBA loans that are part of the stimulus package are not going to save the small businesses they are supposed to be saving.

I’ve been assuming the best case scenario for them is to slow the death of many of them. Some will hang on for awhile, and the shorter this goes on the better the survival rate.

> suing me and my cofounder personally to repay his note

On what grounds?

Investor must be claiming fraud or gross negligence.

Investor is suing for breach of contract (the unpaid convertible note), trying to "pierce the corporate veil" by claiming alter-ego.

In the end we'll "win" this, but that will not save us from having to spend $50-$150k in lawyers to resolve it (if this goes all the way to trial, it's about 18-24 months of paying lawyers which cost about $500/hr, at about 10hrs/month).

Best of luck. I've been through something similar and know how stressful it can be. When closing my last startup, we purchased a D&O tail policy to cover cases like this. It's a good way to buy a little peace of mind.

Doesn't the D&O insurance cover this?

Unfortunately we didn't have insurance. That's a great tip btw.

If you don't pay interest on tjme you are in "default", and creditors take over the company. Old shares (stocks) are deleted, just like that. A loan is a contractual obligations. This is like the 101 of investing, understanding what the capital structure of a company is.

Edit: ignore my comment; didn't realize the debt "leaked" through the corporate capital structure directly to the founders; I agree that investor is probably quite an asshole.

I was asking on what grounds someone could expect a personal guarantee from individual founders, rather than a guarantee from the business that no longer exists. (Unless the terms of the convertible note are particularly horrific.)

(I'm not questioning that an investor via convertible note has the ability to call the note due from the company. The specific sentence quoted in my reply regarded the expectation of personal repayment after the company was driven into bankruptcy.)

Two reasons occur: personal guarantee on the note (I have no idea whether this occurs where this person lives...it isn't something I would ever do, no matter the circumstance) or fraudulent conveyance (i.e. the executives start stripping assets when the company goes into BK, afaik this is a civil action that can be brought against executives either by creditors themselves or trustees).

For anyone just googling "HYG" and seeing a flat chart (with a dip at the end), use a tool like Portfolio Visualizer to see the effect of bond ETF dividends. Put "HYG" under ticker, set it to 100% and make sure to set Display Income to "Yes". You'll get compound annual growth rate (4.52%) and the inflation adjusted value (2.76%) as well.

https://www.portfoliovisualizer.com/backtest-portfolio

What a world we live in now that 4.52% is the yield for junk bonds.

Oh wow, that's a change. But FWIW, I don't think it's very helpful to look at an aggregate like that, which doesn't distinguish between (at least pre-crisis) ratings. For some other datapoints, I would recommend:

1) S&P BB-rated bond index (just below investment grade), which shows a 6.3% yield for that grade.

https://fred.stlouisfed.org/series/BAMLH0A1HYBBEY

2) I do see a 10% yield at the B rating:

https://fred.stlouisfed.org/series/BAMLH0A2HYBEY

So that must be what the market is effectively classing Airbnb as.

3) The Vanguard high-yield corporate fund, which shows an 8.1% yield:

https://investor.vanguard.com/mutual-funds/profile/overview/...

(Also an aggregate like the high yield index you listed and noisy for that reason.)

> What are you going to pay the interest with, your negative profits?

Capital structure arbitrage means that there's a market for any public company's junk bonds regardless of their balance sheet position. What matters is the likelihood of collapse, as measured by put option pricing.

The logic is pretty straightforward. You buy the bond, put options on the common equity, and short the appropriate treasury futures contract. If the company fails to pay the bond as agreed, you get your money back via the put options. If they don't, you collect the excess premium of the junk bonds, minus the cost of delivering the short treasury futures contracts and the premium paid for the put options that are expiring worthless.

At no point does the actual creditworthiness of the company matter in this analysis. The arbitrageurs need not care. If the equity market believes that they have a future, they're either right and you get paid back on the junk bonds, or they're wrong and you pick their pocket shorting the company.

What's the sticking point here? What if you have competitors doing the same arb? Seems like it's not a pure guaranteed arb. What parameters are pushed to the margins?

I'm an ex derivatives trader so you can go into details.

If you squint and look at a corporate bond funny, it has an asymmetric payoff profile that looks an awful lot like selling a put option on common equity. If the company does badly you can lose up to a certain maximum, and if it does well you get to book a little bit of profit. Everything else is relatively unimportant bookkeeping and technical details that I am not familiar with because this is a member of "things I read about and found interesting and understood", not "things I have done in the market to make money".

You can take on the equity risk either by delta-hedging it and shorting the underlying stock like you would when selling options, or you can buy options written by people who likely end up doing delta hedging. On the bond side, you can either buy the underlying and hedge interest rate risk in the treasury futures market, or you can take aim at the credit default swap market and buy/sell the credit spread directly. Either way, you're basically just modeling the relationship between different prices in a company's capital structure and noting how much money your combined position makes if prices converge at either corporate success or bankruptcy.

> What's the sticking point here? What if you have competitors doing the same arb?

You have competitors doing the same arb, there's no free money to be made. My point is that when a company decides to sell bonds, there are people who will buy it based off the solvency risk implied by equity option prices.

> Seems like it's not a pure guaranteed arb.

It's not, but the side I described generally doesn't have lurking steamrollers to run you over. Model breakdown is a thing that happens, especially during crises, and especially if you slightly under-hedge to avoid paying carry costs for the "equity does badly but no bankruptcy" profit case. Plus, there's no guarantee that buying put options or shorting common equity will make a profit if the underlying company goes kaput (for example, if trading is suspended in the underlying, your options can expire or your short position can charge you borrow fees while you are unable to legally purchase shares to deliver into the contract or to close your short).

I meant when you're a (sensible) startup founder that wants to see the fruit of their labor, not when you are a fund manager. We're both correct, just looking from supply vs demand points of view.

This is clearly not true, because if any company can find a market for their bonds, no company would ever need to go bankrupt.

Puts would be prohibitively expensive if the company is likely to go bankrupt.

There's a market, there's not a market of unlimited size (or even one large enough to make a meaningful difference to solvency). As one upper limit, if you borrow literally every publicly available share and sell it short, that limits you to hedging bonds up to the total market capitalization of the company.

“ put options on the common equity” you mean index or that company’s? Because you can’t buy options for Airbnb as it’s not IPOd yet

I mean you can't, but the secondary market for large private firms is rather well developed for the big players.

To reinforce the warning at the end, the put/call ratio on HYG is currently 12 (!) Lots of money is betting on it falling in price.

The Fed is also not buying non-IG bonds (yet) so nobody will be supporting HYG/JNK in the way LQD will be. If they start buying those, HYG will soar. An oil price spike and recovery would help HYG too.

To be fair, I did make money on weekly HYG calls today, but that was a hedge ;) 4/9 76C from .50 to 1.18

Why does AirBnb need a billion dollars?

I can't find anything suggesting they're spending more than $100mm on their ongoing litigation, the technology isn't particularly novel or complex, is the rest just going to compliance or to pay for previous commitments?

Just seems like an absurd amount of money. That's like one year of revenue for them.

AirBnb is in an existential crisis right now... it might take years before their market recovers...

It makes absolutely sense to have enough money to weather this storm....

Even firing people costs money... even just keeping their lights on, and service at bay, (with no new features) costs money....

People that usually comment like the above are either: Young and inexperienced, or just not don't have real life experience on running a business. I used to think like that when I was young, but after some years of experience your view on things changes and becomes more nuanced.

In general, it’s a great question: why does it take such extreme overhead to run a digital company that’s like Craigslist with better pictures. I understand it’s more than that but it’s still a valid philosophical question to ask it there’s a way to run it with say 1,200 employees? Or maybe there’s not.

It’s analogous to the size of government and this trend of doing less with more.

Craigslist has 50 employees. I know there’s a ton of counter arguments to minimize my point but surely there’s a third way between 50 and 12,000.

Craigslist is only the listing part. Airbnb does listings, but it also does booking management, cancellations, payments and refunds, host support, etc as well.

Plus Airbnb has reps all over the world helping hosts. If they had ten staff (photographers, sales, etc) in every city that has more than a million population that'd account for more than 5000 people alone.

Not sure how much "helping" of hosts Airbnb does, at least when it's really needed. They quick and thick with platitudes but thin on support when push comes to shove as they almost always side with guests.

I'm a superhost with only 5 listings one has over 100 reviews with 4.98 average rating. So far Airbnb has remotely adjudicated 2 guest disputes (on my 4 years of operations) that cost me $5k. Not trivial.

That's subjective though. The guests who raised the disputes presumably think Airbnb did a great job.

Dispute resolution is essentially marketing. When a host tells people they lost a dispute most people don't care because they're not going to be in that position. Most people can't afford to buy property to let on Airbnb. Even it they are in a position to buy and let a property, so long as Airbnb have more supply than demand then they're happy - they're getting every booking they can. Having another host in an area that already has hosts doesn't add much to their business. (If you were the only host in the area then you'd be much more likely to win disputes.)

When a guest tells people they lost then everyone can imagine being in that position, and might stop wanting to use Airbnb. That has a measurable impact on Airbnb's revenue.

The key thing to remember with any company that runs both sides of a marketplace is that they care about themselves more than either party in a dispute. I have no idea about the numbers, but if Airbnb side with hosts more than 10% of the time I'd be absolutely amazed. In popular areas it's probably less than 5%.

I agree completely with all you say, particularly the incentives to favor guest outcomes. There is a rising tide of hosts scarred by Airbnb here in Bali. The market is (was) ripe for alternatives.

I think the question is what are they going to do with $1B though? Like why would they ever need that much money? I have the same question about a bunch of unicorns like Lyft and Uber. Their core offering hasn't changed all that much in years. My only guess is that it's like Hitchhikers Guide to the Galaxy where they have spend 10% of operations and 90% on running their complaint department.

"Airbnb Will Give $250 Million to Hosts Who Lost Income to Virus"

https://www.bloomberg.com/news/articles/2020-03-30/airbnb-wi...

When you write it like that, they sound generous. In reality, they tried to pass the hit for Coronavirus related cancellations to the hosts and then realized they were in for legal trouble if they followed through.

Iirc they passed the costs from the end user to the hosts by enforcing a much more lenient refund policy than what many hosts had put on their listings?

https://www.airbnb.com/help/article/43/what-happens-if-my-gu...

> Guests who cancel are automatically refunded according to YOUR cancellation policy—unless the cancellation qualifies as an extenuating circumstance or falls under our Guest Refund Policy.

Exactly. And they were not legally allowed to do that. Which is why they are reimbursing hosts. They were flooded with cancellations and did right by the renter, but wanted the host to take the hit, when in reality the broker (AirBnb) is liable.

Still screwing people though. We had reservations that fell outside of their "coronavirus window" (the 24th) so they wouldn't give us a refund.

When Trump extended his guideline, they only offered half the cash back or all of it in credit. That doesn't even feel legal to me.

Yes, particularly those with "strict" policy which was originally no refund, then Airbnb degraded it to 50% refund if cancelled before 14 days, then degraded to 100% refund if the guest had an "extenuating circumstance", then a full refund when virus-related things were added to the ECs.

Amazing. What worth does a policy have if it can be changed at will?

Might you or someone else be able to elaborate? Did they simply tell hosts that they were responsible for refunding the money or was it that hosts were on the hook for AirBnBs percentage of the bookings?

Why would they do this? I thought this is what travel insurance is for, at least in Norway I think they are liable for the bill when the government deems an area unsafe to visit

This certainly varies by country. In the US and many other countries travel insurance typically excludes pandemics.

PR and they thought they could get away with hosts shouldering the costs

With 13,000 employees at an average fully-loaded cost of $150K/yr (just a guess), $1B will let you keep them all employed for about 6 months.

They have 13000 employees. That's a lot of money in salary alone

Well why do they have so many employees?

The number of countries they operate in and the assumption that the next few years would be growth years. This isn't really rocket-science.

It’s not just that. Being flush with cash causes engineering bloat. You start chasing blue sky trendy ideas (AirBnb was reportedly doing chatbot for a while, ala Volara.) or chasing more and marginal gains on existing products. It’s inevitable, when money is cheap.

So they probably need to let go of those staff and projects rather than raising money at high interest?

The vulnerabilities of this business model laid bare. If you're a business like Airbnb you have to be global, otherwise a competitor will be and they'll eat you up. You need solid in country representation otherwise competitors with a deeper regional focus (even smaller companies) will have better offerings and eat your market share. It seems being global and local is possible with 13,000 employees.... except when tourism crashes 90+%.

Sure, but why do they need 13,000 employees is the question.

No doubt there's big layoffs coming

Makes sense to borrow at 10%?!?! You are witnessing the end here

And comments like this usually come from people with a warped concept of money and funding. But it doesn't help to comment on the nature of a poster because you don't know much about them.

The comment is not on the necessity of money but the amount. I legitimately can not fathom why AirBnb needs that much money to run a service business on top of a custom app and website when the fundamental complexity of the business (the particular nuances of local markets, their regulatory/compliance needs, etc) has always been a second thought to their management and trawling for articles, it does not seem like they need that much money to continue. Particularly since regulatory bodies and courts have closed worldwide.

They are a middleman but a very complex one with what I would guess are enormous legal costs. Paypal has the same amount of employees. Uber has twice the amount. Could they exist with fewer employees? I'm sure they can but that means less people employed.

Employees and potential assistance for hosts...

This is something I've struggled with as well conceptually. The company has 12000+ employees and is essentially an online marketplace.

I mean at what point will people stop valuing a business like that like a tech company and start valuing it like a rental company? Because the defining feature of technology is essentially low marginal cost at scale, and these companies just seem to keep growing in their human labour.

This seems generally true for a lot of companies in the "sharing economy" space.

I think a good counter example is Etsy. They're like an old dog in the startup unicorn space. They took an existing market and commoditized it. Grew too fast behind a sneaky CEO and well-publicized tech culture. Went IPO, got sued, fired the CEO, let go off a bunch of staff working on projects outside their core business. And since then have been kinda cruising for a while earning a lot of revenue and keeping their business stable. They have <1000 employees to do all of this which seems like a reasonable number.

> Because the defining feature of technology is essentially low marginal cost at scale

Outside of the current crisis I think this holds true doesn't it? I'd be curious to compare how many employees AirBnb has per bedroom compared to a hotel chain (and then factor in that they are still in the process of scaling).

The issue now means they have pretty much zero revenue, but that's kind of beside the point. I'd venture to guess they can manage costs better than a hotel since they don't actually own any buildings, or employ the folks that maintain those buildings. As far as property costs, they take a one time hit on cancellations.

I feel like it’s unfair to suggest they stop valuing the company like a tech company while simultaneously calling them nothing more than an online marketplace.

Google suggests Marriot has 176,000 employees, and Hilton 169,000. So AirBnB is massively smaller, still.

Underestimating employee counts is a phenomenon similar to underestimating software rewrite costs/time. The happy path seems simple... but then there's thousands of marginal features or requirements that have come up over the years that make the thing more viable that all take more people and more time.

AirBnb doesn't operate any properties. I'd bet 90% of Marriott and Hilton staff are running hotels. Not applying machine learning to the check-in process.

Well, yes, exactly. That's the theory behind their valuation: that they might be able to capture the revenue with much lower overhead.

Your guess of 90% seems in line with AirBnB: 0.1 * 170,000 = 17,000, which is still more than AirBnB's current headcount, right?

A marginal amount considering you need to have far less operational staff "below the line" when you don't have thousands of properties to manage.

Its understandable why a global hotel chain would have so many employees. Each location needs management staff, supervisors, front desk attendants, housekeepers, etc. Makes sense why AirBnB is so much smaller. It's still curious why they have so many employees. Probably a lot of regional support staff but idk.

> Google suggests Marriot has 176,000 employees, and Hilton 169,000. So AirBnB is massively smaller, still.

Marriot et al employ hotel staff, cleaners, chefs, restaurant staff, bar staff... people to run a hospitality business.

Should Airbnb start counting every host on the platform and then every cleaning person that cleans the apartment?

Fairer comparison would be booking.com with 17000 people. Which still seems quite high to be honest.

The core strength of tech startups is the scalability without increasing headcounts. AirBnB is throwing that strength away in the pursuit of growth.

Essentially think of it as a lifeline for a year, they are prepared for things to be rough for a while. Now if the virus persists and things are still as crazy now as late into the summer/fall all these hosts who bought a few houses for airbnb rentals begin to lose the houses to defaults. Millions laid off don't have money to travel for hotels or airbnb rentals and those that do are afraid due to virus concerns. What seemed like a total bulletproof business model is falling apart. But that's if things stay bad for awhile. I truly hope not but the loan keeps them solvent.

Crazy prediction: Airbnb offers financing to leveraged hosts who will decimate the supply side of the marketplace if they lose their property.

Like a Stripe loan, but for the house you bought to Airbnb.

When the market comes back all the loans are sold off (collateralized or just packaged up) and Airbnb can service their original debt with the spread.

But that's if things stay bad for awhile.

Tourism was the first sector to suffer in this crisis and my guess is it will be the last to recover.

When you're large enough it's easy to hire people to gain a 0.01% lift in metrics and still come out ahead. At least on paper/dashboards but that's usually all that promotions and budget allocation is based off of. Downsizing after that is hard and expensive.

So Airbnb has tried to unsuccessfully pivot to a payments infra company for several years now. Notable acquisitions for this effort include acqui-hiring ChangeTip, a bitcoin micropayments platform, and Tilt, a social payments platform. But Square and CashApp are way ahead of the curve. I suspect there's internal political problems.

They are expecting their revenue to basically go to near zero for the next year.

Cheap acquisitions

because their revenue is basically $0 right now?

I really hope this money isn't going to be some sort of compensation / relief plan for lost income for full-time hosts with multiple properties in a city

There is a fund for "Superhosts", but it excludes hosts with than two properties.

https://www.airbnb.com/superhostrelief

It will be interesting to see what impact this will have on housing prices in cities where AirBnB was primarily paying the mortgage.

AirBnB being in trouble is great news for a lot of people in SF. I look forward to seeing one bedroom apartments back under $500k.

I feel like you have to be delusional to believe AirBnB is the cause for outrageous rents in SF.

The housing market everywhere in the bay area is absolutely insane - do you really believe that AirBNB has an outsized impact on cities like San Mateo?

AirBNB continues to be the housing boogeyman while many people turn a blind eye to the absolutely sluggish rate of construction in the city.

It is hard to measure the impact of either, but denying that it had have a negative effect is delusional.

Only in my circle, I count two individuals who own property exclusively for the sake of renting it out on AirBnB. I have nothing against landlords, but facilitating this activity at scale is hurting society since property is being grabbed for the sole purpose of renting it out; those who have capital continue amassing property and raising prizes since property to rent out is the best investment vehicle.

OT: you have a nice misnegation there — “denying that it didn’t have...” I think you meant “denying that it had...”

https://languagelog.ldc.upenn.edu/nll/?cat=273

thank you sir.

SF and the Bay Area's housing problems predate AirBnB becoming popular. There just isn't enough supply and regulations prevent building more.

I might agree if you were talking about Barcelona or Rome or something like that.

It's never only one issue but does Airbnb compound the problem? I would say so.

I think the density limits deserve much more blame than AirBnB

Why?

Will AirBnB taking a loan automatically shut down the NIMBYs that block construction projects in SF?

Will it prevent shadows from falling on parks and historic laundromats from being preserved?

It is much more likely these would continue to operate as short term rentals, but with a new owner. And in a lot of cases these investors can ride out a couple months of no bookings. The CARES act covers mortgages for many investors of residential property, offering forbearance of the mortgage.

and sub $3k 1BR monthly rentals too.

Airbnb provides a service that has enjoyed incredible popularity for more than a decade. Granted, if it collapses, demand for SF real estate will diminish. When people die from COVID-19, demand decreases as well. Those are not good things.

This post should be higher. I don’t have anything personally against people working at AirBnB, but I genuinely hope that they will go bust.

This is not a problem limited to San Francisco but it’s a problem for every travel destination over the World. The housing prices are inflated and because of AirBnB. We all are paying for AirBnB success.

>The housing prices are inflated and because of AirBnB

You can't prove this.

Yes, you can: https://www.google.com/amp/s/hbr.org/amp/2019/04/research-wh...

This is weird, how does it happen that a company that is essentially a proxy with 0 skin in the game, require injection of funds like this?

I understand that their income probably dropped, but what is it that they are they spending so much money on that they can't cut back during the pandemic and its aftershock?

Real question, I'm not very knowledgeable in that space so would love to understand what I'm missing.

https://en.wikipedia.org/wiki/Airbnb

Number of employees: 12,736 (2019)

I mean:

apple is essentially a proxy with zero skin in the game. They don't manufacture the phones, screens, chips etc...

airlines are proxies, most planes are leased not owned...

Hotels are proxies, most hotel properties are franchises not owned by corporate...

This is not correct. Apple has an inventory, stores, employees in those stores, etc. Likewise, for your other examples, these companies have to hold things on their books like hotel staff, lease payments, building maintenance, etc regardless of demand.

Airbnb is different. When demand drops, their costs directly drop as well since they don't pay hosts for stays that did not happen.

Yes but right now they spend a billion dollars per year on humans doing things. They could tell all or most of them to go home and not come back, and then they wouldnt. But it seems they are placing big bet on this being highly temporary.

The odd thing is that they dont seem to get rid of anyone at all. Most companies use COVID as an excuse for a round of overdue layoffs

I agree this is odd. Given their business, what Airbnb needs 12000+ employees for is beyond me.

Apple spends double digit billions of dollars on capital expenditures a year.

I am not really sure who got the best of this deal.

Definitely, this looks like an attractive investment. Limited downside, nice rate, and some nice optionality with the warrants.

But...this is AirBnb. At the very least, they should have got either an improved strike or more shares. The warrants just seem to say something very different to the bonds.

At best, this is a B rated security and maybe CCC.

And they are really going to have a chainsaw to costs here. I would expect at least 50% of the workforce and probably closer to 75% given the fat that some of these SV companies have been rolling with. Definitely funding that screams: we are near bankruptcy.

Meanwhile Craigslist will live on...

Yeah, because Craigslist actually facilitated the transaction between buyer and seller. They were a pure example of a "dumb pipe", designed to do just one thing.

I booked plenty of spare rooms and apartments on CL back in the 2000s. Send an email, chat briefly on the phone, done deal. No muss, no fuss.

Airbnb wants to control every aspect of the transaction, from payment, to even simply communicating with the host; everything has to go through their channels.

Beyond that, they've tried to become a hotel company without offering protections for hosts, or following any of the regulations that hotels do, until events force them to act otherwise (wild parties resulting in damages, the recent shootings at a US and then at a Toronto location).

Unsurprisingly, they are now stonewalling both hosts and guests on cancellation refunds. Do a search for "bchesky" on Twitter; there are thousands of tweets from people who are out significant amounts of money.

ServiceNow currently has debt that is paying 0% interest. I think a lot of companies are in the same position. I don't think Apple's bonds are paying very much interest at all either. If Airbnb is selling junk bonds at 10%, that is catastrophically high. The World Bank's Pandemic Bonds were paying about 13% interest, so there's a high amount of risk built into that debt. And I wonder how many warrants were issued because that has a real dilution potential for other investors and employees.

>"Airbnb Inc. agreed to pay its new investors interest at a rate of more than 10% and to strengthen its leadership, in return for the $1 billion in additional funding announced Monday, according to people familiar with the matter."

Can anyone shed some like on exactly what is is meant by AirBnB agreeing to "strengthen its leadership"? Does this mean make changes to its' board?

The board has been growing in preparation for the IPO. I think this means adding seasoned C-level roles. There is still no CFO, COO left and there hasn’t been a CMO in years. Operational C-level is not that seasoned and has gaps.

Wow! Who pays 10% for money in bulk today? Companies in desperate trouble.

ooohff. That hurts but still cheaper than equity, especially a down round.

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.

I think if every company, especially not yet profitable "startups" planned for 3 black swan events we won't have many new companies. They'll just end up spending all their time, energy and money on the once in a hundred year events.

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.

> exercise their options before they expire

Usually employee options don't expire until some amount of time after you leave the company

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.

Great product maybe. Great company clearly not.

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.

Being partly responsible for increasing rent in the city, blatantly ignoring city's bylaws and zoning laws, having to deal with some Airbnb neighbors from hell while Airbnb preached the Silicon valley cool aid of we are changing the world and actually helping people, I would be lying if I said that I'm not a tiny bit happy to see this.

Already ton's of apartment have started popping for long term lease here in TO.

The cool part is all of these units that were AirBNB units owners are struggling with might get locked into year long leases to stem the bleeding, keeping them out of short term rental inventory for a year. This might cause a material decline in YoY revenue for AirBNB over the next year, depending on how long lockdown lasts, which is unfortunate timing considering their new financing arrangement.

In a lot of markets it’s going to be hard for land lords to kick these tenants out too. Many speculators are probably getting panicked here and they’ll rent long term and not easily be able to go back into short term any time soon due to renters rights in certain places.

I'm in a house right now, sitting out the virus thing, that cost $60/night, which used to cost >$250 just 2 months ago... I'm renting longish term (few weeks), but still - that's a deep discount...

http://archive.is/v7GUC

Trying to wrap my head around this.

Is this different from Convertible Debt?

Also, why raise at 10% interest when interest rates are so low?

> Also, why raise at 10% interest when interest rates are so low?

Interest rates on a house reflect the fact that the bank can repossess it if you stop paying.

AirBnB's higher interest rate reflects the chance that there'll be nothing left.

Corporate bond yields spiked due to business risks posed by Covid19. B rated bonds went from ~5% to >10.65%

https://ycharts.com/indicators/us_high_yield_b_effective_yie...

a preferred Payment In Kind (PIK) is not the same as a high yield bond.

PIK is closer to equity so a 10% interest is pretty high

> Also, why raise at 10% interest when interest rates are so low?

There's an old proverb in finance that goes:

"If you borrow a million and can't pay it back, you're in trouble.

If you borrow a billion and can't pay it back, the bank's in trouble."

There was no way Airbnb was going to get that kind of cash at anywhere near 'market rates'.

Interests rate are low for low-risk borrowers, Airbnb isn't one.

Airbnb is exactly what is wrong with tech, and this is more reason why. There is no reason why the company needs that much cash.

Also, the company is actively hollowing out our cities so they can make a quick buck off of the back of low-to-middle income renters.

Gut feeling says Expedia will buy them when this all over.

Or they will buy Expedia. Who knows which one survives.

if only they can get into quarantining as a service.

They could, if they actually owned leased their own properties like hotels do, instead of shifting the risk on to homeowners and taking their cut.

But that wouldn't make it a 'billion dollar company'.

I know folks that a few weeks ago rented places outside the cities for a few months to do just that.

Where can I get a piece of that?

I hope they just shut down and go out of business. I’ve really come to hate Airbnb and their shady practices, and I’d love to see them replaced by something better.

The reporting is a little off.

It's says an $18b valuation is "a drop of almost half" from $31b. OK, almost.

Then it says all of the $1b is debt which would not suggest a new valuation.

"The investors will also get warrants that can be converted into shares with a valuation for the company of $18 billion, a drop of almost half since Airbnb’s last fundraising in 2017, the people said."

This indicates they'll get twice as many shares for the money as previous investors. Hence a ~50% drop in valuation.

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