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Airbnb’s Battle to Stay Private

104 points by thedogeye 9y ago

jonknee 9y ago
Interesting bit about what Airbnb has been doing with all their raised VC... > The addition of Tosi in 2015 was a signal for Wall Street to pay attention to the company. He was eager to create new, cash-generating ventures at Airbnb, people familiar with his work said. He quietly built a hedge fund within the company’s finance department. He used a portion of capital from the balance sheet to buy stocks, currencies and fixed-income securities, mimicking the treasury fund he ran at Blackstone. The side project represented 30 percent of the company’s cash flow last year and made about $5 million a month for Airbnb, the people said.
- fnbr 9y ago
  What? That's absolutely wild. Is this typical? How does it compare to what, say, Alphabet's treasury does?
  - tbrock 9y ago
    Yes. This is very typical. What do you think Apple does with the hundreds of billions on its balance sheet? It’s not sitting in a savings account earning interest. Sure Apple uses some cash to build factories and technology but has an internal hedge fund invest the majority of it. Same goes for Google, Microsoft, etc.
    - tarsinge 9y ago
      So in the end companies use their cash to invest in each other? I have a hard time wrapping my head around the economic impact but it doesn’t look very healthy to me (or is it?)
      - spdy 9y ago
        Its a solid route to take if the market goes south the states have to intervene as they did in 2008. Privatize profits socialize loses.
      - Johnie 9y ago
        They don't invest in each other. They buy low risk securities, like Treasuries.
      - PeterisP 9y ago
        It kind of makes sense from the investor's perspective. Let's say that I've invested 100m in Apple, and that's the amount I wish to have invested. Apple does not need cash at the moment and is currently reinvesting it in other companies. The alternative would be for them to redistribute money to shareholders - say, I'd get 20m back, and could reinvest it in other companies myself. But there's a big difference - if I'd do it, the 20m would get taxed; if Apple does it directly, then it's not.
        Retric 9y ago
        Stock buybacks are a much better approach than simple dividends from a tax standpoint. I invest in Apple get say 1%. Over next 20 years Apple buys back 50% of it's stock. I now own 2% of Apple without paying any taxes.
        moccachino 9y ago
        Hm.. You still own 1% of Apple right? Otherwise, what happens at the end of 20 years when a 100 investors each buy 1%?
        Retric 9y ago
        Apple can only buy stock when someone sells it. Consider there are 100 shares and you own 1 of them. Now Apple buys 1 share from someone that sold it, that means there are 99 shares and you own 1 of them. Repeat until Apple buys 50 shares, there are 50 outstanding and you own 1 share. Now, apple does a 1:2 split so there are 100 outstanding shares and you own 2 of them post split. It's true that the people selling stocks have to pay capital gains. However, they always need to do that when selling shares to anyone.
  - thisisit 9y ago
    Most companies mobilize their excess reserves. There is no point in holding cash doing nothing. But I don't think many companies come close to the 30% figure of Airbnb. And hence the question - what happens when markets start go down? If they keep pumping money to the hedge fund they might have a contagion risk on their hands like, as pointed out by paganel in this thread, GE Capital almost taking down GE.
  - mcintyre1994 9y ago
    An interesting example is Apple: their hedge fund Braeburn Capital (https://en.wikipedia.org/wiki/Braeburn_Capital https://en.wikipedia.org/wiki/Braeburn_Capital) has over $250bn under management. In 2012 it was widely reported as the world's largest hedge fund at less than half its current size so I assume it still is.
  - protomyth 9y ago
    Grain companies do this stuff, so it’s not unique to tech either.
- tristanj 9y ago
  >has been doing with all their raised VC VC money is not the intent of this program. Airbnb is trying to capitalize on the hundreds of millions of dollars in customer deposits they hold every day. Instead of letting this money sit in a bank account collecting minimal interest, why not invest some of it in a money market fund? If Airbnb plays their cards right, in a few years they have the option to remove platform fees entirely and still be profitable just from their market investments. Imagine that. They just need to hold on to customer money as long as possible, which I believe they already do (I'd estimate they sit on money for 2+ weeks on average). Paypal was a major innovator these techniques over a decade ago.
  - desas 9y ago
    Isn't this how virtually all insurance companies work? I'm sure I read that in relation to Berkshire Hathaway once.
    - thaumasiotes 9y ago
      Yes. It's also how banks work. Seems difficult to call Paypal an innovator in the field. Paypal is just a bank.
      - noway421 9y ago
        Investment banks. Regular banks would hold the funds in treasuries and other low risk securities.
        newfoundglory 9y ago
        That was only because it was specifically regulated to be so by the Glass Stegall Act, which was repealed in 1999 which was right when PayPal was created. So they had good timing, but it's not like they came up with anything new.
    - JumpCrisscross 9y ago
      > Isn't this how virtually all insurance companies work? The returns seem high. That implies extra risk.
- Johnie 9y ago
  This is basic financial engineering and treasury management. What's unique about AirBnB's business is that they collect money at the time of booking and don't pay out until after the stay. So basically, they are holding onto a ton of money and getting free float. AirBnB realized they can use this float in investing in low risk treasuries and generate a little revenue. (It is unlikely that equities is an asset class that is used) This is nothing new. A lot of the major tech companies with large cash balances do this. Google built it's own trading floor in Sunnyvale [1]. Apple has one in Nevada [2]. Microsoft has $126B in marketable securities [3]. And other tech [4] [1] https://www.bloomberg.com/news/articles/2010-05-27/googles-latest-launch-its-own-trading-floor https://www.bloomberg.com/news/articles/2010-05-27/googles-l... [2] https://en.wikipedia.org/wiki/Braeburn_Capital https://en.wikipedia.org/wiki/Braeburn_Capital [3] https://ftalphaville.ft.com/2017/04/11/2187328/could-this-be-the-big-mystery-bidder-at-treasury-auctions/ https://ftalphaville.ft.com/2017/04/11/2187328/could-this-be... [4] http://money.cnn.com/2014/03/13/investing/tech-bonds-overseas-cash/index.html http://money.cnn.com/2014/03/13/investing/tech-bonds-oversea...
  - stygiansonic 9y ago
    Agreed this is normal and a pretty regular thing to do with free float like that. As you pointed out, investing heavily in equities or other more risky assets is probably not normal and would be surprised if they did this - this would essentially mean they were more interested in being a hedge fund rather than Airbnb. Generally companies stay away from risky investments; even when the aim is for some purpose directly related to their core business things can go sideways fast. See, for example, Southwest and their fuel hedges, which were great when oil was going up huge back in 2007 but not so much anymore: https://www.fool.com/investing/2016/07/25/southwest-airlines-gets-burned-by-fuel-hedges-agai.aspx https://www.fool.com/investing/2016/07/25/southwest-airlines...
  - koolba 9y ago
    Whts different now is that with rising rates the risk free rate is finally non-zero. If the average book time is M months in advance of payout, they’re running S in sales, and interest rates are at Y%, then this would generate S x Y x M / 12. With Y even at just 1% that’s some legit money at their scale.
cobookman 9y ago
Why would VC's give Airbnb such much idle cash. 5.3 Billion in cash reserves is ~56 years of their current earnings. Couldn't VC's take some of that money and invest elsewhere and get better returns on the cash than it sitting unused in a company?
- isubkhankulov 9y ago
  i think youre under estimating the battles Airbnb is fighting in most of its largest markets
  - raiyu 9y ago
    There are certainly battles they are fighting but if they have over $5B in cash reserves and are profitable to an extent that's no where near the fight that Uber was waging in China were it was burning (net loss) of over $1B a quarter.
  - cobookman 9y ago
    Sure, and if they need more money they can go to VCs. However Im suprised VCs will give them all the cash up front. Figured it'd be something like, "Hey I'll commit 1Billion in cash to your needs, however I'm currently holding it in a mutal fund myself. Let me know when you need it"
- jitl 9y ago
  1. When VCs gave Airbnb that money, Airbnb wasn’t profitable. 2. VCs want to own parts of a valuable, growing business. It’s probably doing more good as Airbnb shares, dollar per dollar, than any other private company.
acconrad 9y ago
The interesting thing I read from reddit was that 30% of Airbnb’s cash flow last year came from an internal hedge fund holding currencies, equities, fixed income. This hedge fund was set up by their ex-CFO, so it's an interesting model for generating income. They take money from guests immediately, but do not pay out to hosts until the guests check in, this delay can be up to many months in advance. This gives them time to invest those assets how they see fit. The danger here is that 30% of their cash flow is the result of an incredible bull market, so what happens to Airbnb when we hit a recession?
- paganel 9y ago
  > so what happens to Airbnb when we hit a recession Probably the same thing that happened to GE Capital, which almost managed to capsize GE itself.
- golergka 9y ago
  I heard exactly the same thing about Groupon back in the day. It seems like a standard trick for any company that can hold on to customers' money.
- lamby 9y ago
  > what happens to Airbnb when we hit a recession Or the DOW dropping 1000 points..?
- nugget 9y ago
  If they invest predominantly in very short-term fixed income than equities (which would be my guess) then they may actually perform even better as interest rates rise and the market cools.
- paulcole 9y ago
  I’m guessing you didn’t even read the article before commenting? The reason I ask is because that topic is mentioned in the article itself.
thisisit 9y ago
The linchpin for a lot of technology companies staying private has been Softbank. As they highlight in this article: > The Japanese firm dumped billions of dollars into Uber, WeWork Cos. and other highly valued tech startups in the last year. I wonder where are these guys getting so much money to "dump". And once all of this is over what will they really be remembered for?
- philfrasty 9y ago
  $100 billion „vision“ fund: http://www.businessinsider.de/softbank-ceo-100-billion-vision-fund-made-3-billion-profit-five-months-2017-10?r=US&IR=T http://www.businessinsider.de/softbank-ceo-100-billion-visio...
- kazinator 9y ago
  > I wonder where are these [Softbank] guys getting so much money to "dump" Selling shitty, slow Internet service to old people, that cuts out when a phone call comes in.
- econner 9y ago
  From Saudi oil magnates.
  - ipsum2 9y ago
    The Crown Prince of Saudi Arabia actually: https://www.bloomberg.com/news/articles/2017-12-10/softbank-s-saudi-ties-could-mean-cash-after-kingdom-s-crackdown https://www.bloomberg.com/news/articles/2017-12-10/softbank-...
- aianus 9y ago
  > I wonder where are these guys getting so much money to "dump" They invested in Alibaba early. One of the best VC investments of all time. $58 billion return.
  - tanilama 9y ago
    30% of alibaba stock right? That is much more than 58 billions now...
kelnos 9y ago
Before I say what I'm about to say: I know nothing about Airbnb's finances (aside from what's mentioned in the article) and I have no idea if it actually does or does not make sense for them to go public this year from the standpoint of the success of their business. However, in a general sense, I believe that any company that provides their employees equity as a part of compensation has a moral obligation to get to a point where they can provide liquidity to those employees. It seems the founders and some early employees of Airbnb were able to cash out some of their shares in previous VC rounds, but that likely leaves the bulk of employees holding options or stock in a position of hanging onto something they aren't sure they'll ever be able to cash out. Obviously there needs to be a balance of priorities: going public in a situation where the stock price will likely tank or the business will fail before employees can sell will of course not help anyone. But ignoring the fact that you have a ton of employees depending on some sort of liquidity event (even if it's just a company-initiated stock buyback) is IMO unethical. Not saying that's definitely what's happening here at Airbnb, but the article sure makes it smell that way.
- ericd 9y ago
  Sounds like employees may have been able to cash out a bit via tender offers. The founders and early employees have little financial incentive to push for an IPO. They have cashed in about $350 million worth of equity, said people with knowledge of the matter.
  - dalbasal 9y ago
    Well... that's a small number of "insiders," essentially. The person most vulnerable to the OP's concerns is a rank and file employee with $100k of paper wealth structured as an incentive to stay long-term, the 162nd hire. Equity starts as part of ordinary compensation, but converts to long term employee retention incentives as times goes on and the company increases in value. To be indifferent to these employees' interests is immoral, after you've essentially asked them to make long term decisions based on this deal. These employees understand the least, have the least amount of information. They have the least negotiation power, and hence have equity deals with the fewest protections. They have the least influence over strategic decisions like this, so their interests come last. Owning so much private shares in one company is typically a bad wealth strategy for them, possibly 100% of their "portfolio." Typically after leaving, iliquid shares must be purchased with cash (exercising options) or the options are lost. At the very least, (1) employees should have their options exercised, converted to shares at the companies' expense, after vesting. (2) The protections (preferences, anti-dilution etc.) an average investor would demand should be attached to these shares. That would leave them with an asset they may prefer to sell, but at least they unambiguously own it. Generally though, I agree with the OP. If after raising significant funds and expanding the employee equity pool past 10-20 employees, you can either go for a 5 yr race to IPO or find another liquidity solution for employees. It's possible.
gandutraveler 9y ago
So as per article, Tosi's internal hedge fund contributed to $60m ($5m per month) of Airbnb's $93m annual profit?
- aetherson 9y ago
  Well, $60M of revenue to Airbnb's $2.1B revenue, and of that revenue, $93M was profit.
nora4 9y ago
AirBnB is such a great business. No significant competition for now among startups. Primary (initial) market is different from the incumbents (hotels) and it can gradually chip away from their market share too. It also has better network-effect than say Uber (which has per-city network effect but no significant global network-effect) and less competition than latter. The "moat" is super strong and the leadership (Brian, Joe et al.) seem to be really good. I'm so in awe of their prospect. My only misgiving is that they rejected my application (which proves no one's perfect after all - as they seem to also make hiring mistakes:P)
- xandar11 9y ago
  There are bad things about it: 1. Frequency of usage is low. People might use it once a year on average (unlike Uber which might be used every day). 2. They spend a lot on advertising. You don't have strong free viral growth like you do with chatting apps for example. 3. Most people on the planet are not doing recreational travel. How many people in Africa or Asia will travel to Barcelona this year? Not a lot. This is mostly an app for upper class hipsters, similar to Starbucks. 4. The growth and size is not good compared to other marketplaces. After 10 years in business, eBay had around $6 billion in revenue when there were 1 billion internet users. Airbnb after 10 years has $2.6 billion in revenue and there are 4 billion internet users.
- RandallBrown 9y ago
  Is VRBO/HomeAway not a significant competitor? It's owned by Expedia, so it has a pretty huge backing. I usually check both AirBnB and HomeAway when I'm looking for a rental and don't see any reason to be loyal to one over the other. (AirBnB has a better website/app, but the whole experience is pretty similar.)
  - Naritai 9y ago
    AirBNB has their own version of a 'showrooming' problem as well - last time I went to Hawaii, I found a nice condo that I liked, then searched for that same condo online, found the owner's standalone website offering similar prices but no AirBNB fee. I booked direct.

104 points by thedogeye 9y ago

Interesting bit about what Airbnb has been doing with all their raised VC... > The addition of Tosi in 2015 was a signal for Wall Street to pay attention to the company. He was eager to create new, cash-generating ventures at Airbnb, people familiar with his work said. He quietly built a hedge fund within the company’s finance department. He used a portion of capital from the balance sheet to buy stocks, currencies and fixed-income securities, mimicking the treasury fund he ran at Blackstone. The side project represented 30 percent of the company’s cash flow last year and made about $5 million a month for Airbnb, the people said.

fnbr 9y ago
What? That's absolutely wild. Is this typical? How does it compare to what, say, Alphabet's treasury does?
- tbrock 9y ago
  Yes. This is very typical. What do you think Apple does with the hundreds of billions on its balance sheet? It’s not sitting in a savings account earning interest. Sure Apple uses some cash to build factories and technology but has an internal hedge fund invest the majority of it. Same goes for Google, Microsoft, etc.
  - tarsinge 9y ago
    So in the end companies use their cash to invest in each other? I have a hard time wrapping my head around the economic impact but it doesn’t look very healthy to me (or is it?)
    - spdy 9y ago
      Its a solid route to take if the market goes south the states have to intervene as they did in 2008. Privatize profits socialize loses.
    - Johnie 9y ago
      They don't invest in each other. They buy low risk securities, like Treasuries.
    - PeterisP 9y ago
      It kind of makes sense from the investor's perspective. Let's say that I've invested 100m in Apple, and that's the amount I wish to have invested. Apple does not need cash at the moment and is currently reinvesting it in other companies. The alternative would be for them to redistribute money to shareholders - say, I'd get 20m back, and could reinvest it in other companies myself. But there's a big difference - if I'd do it, the 20m would get taxed; if Apple does it directly, then it's not.
      - Retric 9y ago
        Stock buybacks are a much better approach than simple dividends from a tax standpoint. I invest in Apple get say 1%. Over next 20 years Apple buys back 50% of it's stock. I now own 2% of Apple without paying any taxes.
        moccachino 9y ago
        Hm.. You still own 1% of Apple right? Otherwise, what happens at the end of 20 years when a 100 investors each buy 1%?
        Retric 9y ago
        Apple can only buy stock when someone sells it. Consider there are 100 shares and you own 1 of them. Now Apple buys 1 share from someone that sold it, that means there are 99 shares and you own 1 of them. Repeat until Apple buys 50 shares, there are 50 outstanding and you own 1 share. Now, apple does a 1:2 split so there are 100 outstanding shares and you own 2 of them post split. It's true that the people selling stocks have to pay capital gains. However, they always need to do that when selling shares to anyone.
- thisisit 9y ago
  Most companies mobilize their excess reserves. There is no point in holding cash doing nothing. But I don't think many companies come close to the 30% figure of Airbnb. And hence the question - what happens when markets start go down? If they keep pumping money to the hedge fund they might have a contagion risk on their hands like, as pointed out by paganel in this thread, GE Capital almost taking down GE.
- mcintyre1994 9y ago
  An interesting example is Apple: their hedge fund Braeburn Capital (https://en.wikipedia.org/wiki/Braeburn_Capital https://en.wikipedia.org/wiki/Braeburn_Capital) has over $250bn under management. In 2012 it was widely reported as the world's largest hedge fund at less than half its current size so I assume it still is.
- protomyth 9y ago
  Grain companies do this stuff, so it’s not unique to tech either.
tristanj 9y ago
>has been doing with all their raised VC VC money is not the intent of this program. Airbnb is trying to capitalize on the hundreds of millions of dollars in customer deposits they hold every day. Instead of letting this money sit in a bank account collecting minimal interest, why not invest some of it in a money market fund? If Airbnb plays their cards right, in a few years they have the option to remove platform fees entirely and still be profitable just from their market investments. Imagine that. They just need to hold on to customer money as long as possible, which I believe they already do (I'd estimate they sit on money for 2+ weeks on average). Paypal was a major innovator these techniques over a decade ago.
- desas 9y ago
  Isn't this how virtually all insurance companies work? I'm sure I read that in relation to Berkshire Hathaway once.
  - thaumasiotes 9y ago
    Yes. It's also how banks work. Seems difficult to call Paypal an innovator in the field. Paypal is just a bank.
    - noway421 9y ago
      Investment banks. Regular banks would hold the funds in treasuries and other low risk securities.
      - newfoundglory 9y ago
        That was only because it was specifically regulated to be so by the Glass Stegall Act, which was repealed in 1999 which was right when PayPal was created. So they had good timing, but it's not like they came up with anything new.
  - JumpCrisscross 9y ago
    > Isn't this how virtually all insurance companies work? The returns seem high. That implies extra risk.
Johnie 9y ago
This is basic financial engineering and treasury management. What's unique about AirBnB's business is that they collect money at the time of booking and don't pay out until after the stay. So basically, they are holding onto a ton of money and getting free float. AirBnB realized they can use this float in investing in low risk treasuries and generate a little revenue. (It is unlikely that equities is an asset class that is used) This is nothing new. A lot of the major tech companies with large cash balances do this. Google built it's own trading floor in Sunnyvale [1]. Apple has one in Nevada [2]. Microsoft has $126B in marketable securities [3]. And other tech [4] [1] https://www.bloomberg.com/news/articles/2010-05-27/googles-latest-launch-its-own-trading-floor https://www.bloomberg.com/news/articles/2010-05-27/googles-l... [2] https://en.wikipedia.org/wiki/Braeburn_Capital https://en.wikipedia.org/wiki/Braeburn_Capital [3] https://ftalphaville.ft.com/2017/04/11/2187328/could-this-be-the-big-mystery-bidder-at-treasury-auctions/ https://ftalphaville.ft.com/2017/04/11/2187328/could-this-be... [4] http://money.cnn.com/2014/03/13/investing/tech-bonds-overseas-cash/index.html http://money.cnn.com/2014/03/13/investing/tech-bonds-oversea...
- stygiansonic 9y ago
  Agreed this is normal and a pretty regular thing to do with free float like that. As you pointed out, investing heavily in equities or other more risky assets is probably not normal and would be surprised if they did this - this would essentially mean they were more interested in being a hedge fund rather than Airbnb. Generally companies stay away from risky investments; even when the aim is for some purpose directly related to their core business things can go sideways fast. See, for example, Southwest and their fuel hedges, which were great when oil was going up huge back in 2007 but not so much anymore: https://www.fool.com/investing/2016/07/25/southwest-airlines-gets-burned-by-fuel-hedges-agai.aspx https://www.fool.com/investing/2016/07/25/southwest-airlines...
- koolba 9y ago
  Whts different now is that with rising rates the risk free rate is finally non-zero. If the average book time is M months in advance of payout, they’re running S in sales, and interest rates are at Y%, then this would generate S x Y x M / 12. With Y even at just 1% that’s some legit money at their scale.

cobookman 9y ago

Why would VC's give Airbnb such much idle cash. 5.3 Billion in cash reserves is ~56 years of their current earnings. Couldn't VC's take some of that money and invest elsewhere and get better returns on the cash than it sitting unused in a company?

isubkhankulov 9y ago
i think youre under estimating the battles Airbnb is fighting in most of its largest markets
- raiyu 9y ago
  There are certainly battles they are fighting but if they have over $5B in cash reserves and are profitable to an extent that's no where near the fight that Uber was waging in China were it was burning (net loss) of over $1B a quarter.
- cobookman 9y ago
  Sure, and if they need more money they can go to VCs. However Im suprised VCs will give them all the cash up front. Figured it'd be something like, "Hey I'll commit 1Billion in cash to your needs, however I'm currently holding it in a mutal fund myself. Let me know when you need it"
jitl 9y ago
1. When VCs gave Airbnb that money, Airbnb wasn’t profitable. 2. VCs want to own parts of a valuable, growing business. It’s probably doing more good as Airbnb shares, dollar per dollar, than any other private company.

acconrad 9y ago

The interesting thing I read from reddit was that 30% of Airbnb’s cash flow last year came from an internal hedge fund holding currencies, equities, fixed income. This hedge fund was set up by their ex-CFO, so it's an interesting model for generating income. They take money from guests immediately, but do not pay out to hosts until the guests check in, this delay can be up to many months in advance. This gives them time to invest those assets how they see fit. The danger here is that 30% of their cash flow is the result of an incredible bull market, so what happens to Airbnb when we hit a recession?

paganel 9y ago
> so what happens to Airbnb when we hit a recession Probably the same thing that happened to GE Capital, which almost managed to capsize GE itself.
golergka 9y ago
I heard exactly the same thing about Groupon back in the day. It seems like a standard trick for any company that can hold on to customers' money.
lamby 9y ago
> what happens to Airbnb when we hit a recession Or the DOW dropping 1000 points..?
nugget 9y ago
If they invest predominantly in very short-term fixed income than equities (which would be my guess) then they may actually perform even better as interest rates rise and the market cools.
paulcole 9y ago
I’m guessing you didn’t even read the article before commenting? The reason I ask is because that topic is mentioned in the article itself.

thisisit 9y ago

The linchpin for a lot of technology companies staying private has been Softbank. As they highlight in this article: > The Japanese firm dumped billions of dollars into Uber, WeWork Cos. and other highly valued tech startups in the last year. I wonder where are these guys getting so much money to "dump". And once all of this is over what will they really be remembered for?

philfrasty 9y ago
$100 billion „vision“ fund: http://www.businessinsider.de/softbank-ceo-100-billion-vision-fund-made-3-billion-profit-five-months-2017-10?r=US&IR=T http://www.businessinsider.de/softbank-ceo-100-billion-visio...
kazinator 9y ago
> I wonder where are these [Softbank] guys getting so much money to "dump" Selling shitty, slow Internet service to old people, that cuts out when a phone call comes in.
econner 9y ago
From Saudi oil magnates.
- ipsum2 9y ago
  The Crown Prince of Saudi Arabia actually: https://www.bloomberg.com/news/articles/2017-12-10/softbank-s-saudi-ties-could-mean-cash-after-kingdom-s-crackdown https://www.bloomberg.com/news/articles/2017-12-10/softbank-...
aianus 9y ago
> I wonder where are these guys getting so much money to "dump" They invested in Alibaba early. One of the best VC investments of all time. $58 billion return.
- tanilama 9y ago
  30% of alibaba stock right? That is much more than 58 billions now...

kelnos 9y ago

Before I say what I'm about to say: I know nothing about Airbnb's finances (aside from what's mentioned in the article) and I have no idea if it actually does or does not make sense for them to go public this year from the standpoint of the success of their business. However, in a general sense, I believe that any company that provides their employees equity as a part of compensation has a moral obligation to get to a point where they can provide liquidity to those employees. It seems the founders and some early employees of Airbnb were able to cash out some of their shares in previous VC rounds, but that likely leaves the bulk of employees holding options or stock in a position of hanging onto something they aren't sure they'll ever be able to cash out. Obviously there needs to be a balance of priorities: going public in a situation where the stock price will likely tank or the business will fail before employees can sell will of course not help anyone. But ignoring the fact that you have a ton of employees depending on some sort of liquidity event (even if it's just a company-initiated stock buyback) is IMO unethical. Not saying that's definitely what's happening here at Airbnb, but the article sure makes it smell that way.

ericd 9y ago
Sounds like employees may have been able to cash out a bit via tender offers. The founders and early employees have little financial incentive to push for an IPO. They have cashed in about $350 million worth of equity, said people with knowledge of the matter.
- dalbasal 9y ago
  Well... that's a small number of "insiders," essentially. The person most vulnerable to the OP's concerns is a rank and file employee with $100k of paper wealth structured as an incentive to stay long-term, the 162nd hire. Equity starts as part of ordinary compensation, but converts to long term employee retention incentives as times goes on and the company increases in value. To be indifferent to these employees' interests is immoral, after you've essentially asked them to make long term decisions based on this deal. These employees understand the least, have the least amount of information. They have the least negotiation power, and hence have equity deals with the fewest protections. They have the least influence over strategic decisions like this, so their interests come last. Owning so much private shares in one company is typically a bad wealth strategy for them, possibly 100% of their "portfolio." Typically after leaving, iliquid shares must be purchased with cash (exercising options) or the options are lost. At the very least, (1) employees should have their options exercised, converted to shares at the companies' expense, after vesting. (2) The protections (preferences, anti-dilution etc.) an average investor would demand should be attached to these shares. That would leave them with an asset they may prefer to sell, but at least they unambiguously own it. Generally though, I agree with the OP. If after raising significant funds and expanding the employee equity pool past 10-20 employees, you can either go for a 5 yr race to IPO or find another liquidity solution for employees. It's possible.

gandutraveler 9y ago

So as per article, Tosi's internal hedge fund contributed to $60m ($5m per month) of Airbnb's $93m annual profit?

aetherson 9y ago
Well, $60M of revenue to Airbnb's $2.1B revenue, and of that revenue, $93M was profit.

nora4 9y ago

AirBnB is such a great business. No significant competition for now among startups. Primary (initial) market is different from the incumbents (hotels) and it can gradually chip away from their market share too. It also has better network-effect than say Uber (which has per-city network effect but no significant global network-effect) and less competition than latter. The "moat" is super strong and the leadership (Brian, Joe et al.) seem to be really good. I'm so in awe of their prospect. My only misgiving is that they rejected my application (which proves no one's perfect after all - as they seem to also make hiring mistakes:P)

xandar11 9y ago
There are bad things about it: 1. Frequency of usage is low. People might use it once a year on average (unlike Uber which might be used every day). 2. They spend a lot on advertising. You don't have strong free viral growth like you do with chatting apps for example. 3. Most people on the planet are not doing recreational travel. How many people in Africa or Asia will travel to Barcelona this year? Not a lot. This is mostly an app for upper class hipsters, similar to Starbucks. 4. The growth and size is not good compared to other marketplaces. After 10 years in business, eBay had around $6 billion in revenue when there were 1 billion internet users. Airbnb after 10 years has $2.6 billion in revenue and there are 4 billion internet users.
RandallBrown 9y ago
Is VRBO/HomeAway not a significant competitor? It's owned by Expedia, so it has a pretty huge backing. I usually check both AirBnB and HomeAway when I'm looking for a rental and don't see any reason to be loyal to one over the other. (AirBnB has a better website/app, but the whole experience is pretty similar.)
- Naritai 9y ago
  AirBNB has their own version of a 'showrooming' problem as well - last time I went to Hawaii, I found a nice condo that I liked, then searched for that same condo online, found the owner's standalone website offering similar prices but no AirBNB fee. I booked direct.