4 ms·

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

by 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.
jonknee 9y ago
> 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) Yet the quote specifically states they're buying stocks: > He used a portion of capital from the balance sheet to buy stocks I have a hard time believing they're returning $5 million a month by holding just low risk treasuries. That's $60m a year which would take a consistent investment of $2.5b at an annual 2.5% interest rate (near the current 5-year yield). Bonds have been moving rapidly so they probably need to keep it shorter term than that which would require an even larger float.

by Johnie 9y ago

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.

jonknee 9y ago

> 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) Yet the quote specifically states they're buying stocks: > He used a portion of capital from the balance sheet to buy stocks I have a hard time believing they're returning $5 million a month by holding just low risk treasuries. That's $60m a year which would take a consistent investment of $2.5b at an annual 2.5% interest rate (near the current 5-year yield). Bonds have been moving rapidly so they probably need to keep it shorter term than that which would require an even larger float.