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.
FWIW -- according to LinkedIn, they have 14554 employees, with the top two functions being:
1. Arts & Design (3365 employees)
2. Engineering (1990 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.
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.
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.
> 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.
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.
> 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.
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.
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.
> 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.
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.
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
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
Readit News
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.
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.
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.
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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.
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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).
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).
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.
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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.
On what grounds?
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https://www.portfoliovisualizer.com/backtest-portfolio
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.)
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.
I'm an ex derivatives trader so you can go into details.
Puts would be prohibitively expensive if the company is likely to go bankrupt.
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
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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.
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.
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.
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.
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.
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.
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.
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.
Tourism was the first sector to suffer in this crisis and my guess is it will be the last to recover.
https://www.airbnb.com/superhostrelief
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.
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.
I might agree if you were talking about Barcelona or Rome or something like that.
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?
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.
You can't prove 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.
Number of employees: 12,736 (2019)
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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...
Airbnb is different. When demand drops, their costs directly drop as well since they don't pay hosts for stays that did not happen.
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.
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.