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ooohff. That hurts but still cheaper than equity, especially a down round.
by digitaltrees 7y ago
ooohff. That hurts but still cheaper than equity, especially a down round.
- nemo44x 7y agoIt 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.
- toomuchtodo 7y agoWhat does this do to those with exercised options?
- jonathankoren 7y agoIt’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.
- nemo44x 7y agoWell 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.
- tick_tock_tick 7y agoHonestly 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.
- tmh79 7y agoIf 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.
- icebraining 7y agoSo what you're saying is that it's disgustingly ridiculous that they won't fire a bunch of people?
- onlyrealcuzzo 7y agoI 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??
- nemo44x 7y agoWell, 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.
- tmh79 7y agoyea, 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.
- puranjay 7y agoAirbnb 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.
- nemo44x 7y agoAgreed. 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.
- yibg 7y agoProbably 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.
- deleted 7y ago[deleted]
- digitaltrees 7y agoThanks for the clarification. I didn’t see the details, especially about the warrants. Honestly this sucks. AirBnB is a great product and company.
- nemo44x 7y agoGreat product maybe. Great company clearly not.
- hn_throwaway_99 7y ago> 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.
- nemo44x 7y agoManaging 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.
- hn_throwaway_99 7y agoSo 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.
- nemo44x 7y agoThey 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.
- heymijo 7y agoWhat 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?
- coke12 7y agoThey have to take out loans and exercise their options before they expire.
- thebean11 7y ago> exercise their options before they expire Usually employee options don't expire until some amount of time after you leave the company
- nemo44x 7y agoNot 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.
- nakedshorts 7y agoIf only there were a way to short privately held companies.
- deleted 7y ago[deleted]