12 April 2020

The Wall Street Journal: “Airbnb’s Coronavirus Crisis: Burning Cash, Angry Hosts and an Uncertain Future”

As it grew, the company spent big. Its total costs rose to $5.3 billion last year, from $2.6 billion in 2017, outstripping an 85% increase in revenue over the same period, from $2.6 billion to $4.8 billion, according to a copy of its financial statements.

Administrative costs increased 113% between 2017 and 2019 as the company hired thousands of employees and built out a corporate headquarters in the trendy San Francisco neighborhood known as SOMA, or “South of Market”. As Airbnb struggled to police crime on its platform, spending on safety also has increased, the Journal has reported.

By the beginning of this year, some Airbnb board members were pressuring Mr. Chesky to cut costs, according to people familiar with the discussions.

When the coronavirus hit China and then Europe, Airbnb’s bookings plummeted. In Beijing, little more than 1,600 bookings were made between March 1 and March 7, down 96% from the Jan. 5 to Jan. 11 period, according to AirDNA, an analytics firm that tracks the short-term rental market.

Kirsten Grind, Jean Eaglesham & Preetika Rana

Among the more immediate consequences of the coronavirus pandemic, the travel industry is suffering from a massive blow – I would even say something close to a near-death experience. Its tech disruptor Airbnb is similarly affected, but from my perspective I think they will face harder times ahead. The article above reports that the company is borrowing at an interest rate of 10% above the London interbank rate, a very expensive cash influx, which suggests investors have low confidence that Airbnb can deliver and repay its debts. It’s not so much a question of profitability, as (variable) costs may be slashed quickly in case of crisis, but rather of cash flow. With bookings evaporating in their most lucrative markets and the company pledging to refund bookings in quarantined cities through mid-May, Airbnb is facing a couple of months at least with next to zero incoming cash from its business, and larger than usual payments.

Airbnb company financial statement WSJ
Before the coronavirus hit, Airbnb had been growing rapidly amid increased spending

Their recovery and survival will depend on how fast things get back to ‘normal’, and that’s very hard to estimate. After a long isolation at home, after the stress and constant worrying, there will certainly be a lot of pent up demand for a change of scenery. But the contagion could linger on, without a working vaccine or cure, flaring up in new countries and possibly reemerging in the same places if social restrictions are removed too soon, or reintroduced by travelers. Even if people are gradually allowed to return to something resembling normal social life, I suspect some level of travel restrictions will remain in place, at least a mandatory isolation period after returning from abroad – enough to run tests to insure travelers haven’t brought the virus back into the country. That may not deter all tourists, but it will reduce their numbers, and impact Airbnb and the larger travel industry at least for the rest of the year.

Personally, I’ve always been a bit apprehensive about Airbnb, despite it being generally cheaper, and I haven’t used it at all until now. I keep thinking of the risk involved compared to a regular hotel: if some hotel staff gets sick, the hotel simply calls in replacements and carries on; but if your Airbnb host gets sick or has some emergency, you are left alone in a foreign country with no place to go, maybe in the middle of the night. If you’re riding an Uber, you need to trust the driver for less than an hour, instead here you need to trust in a complete stranger for many days. It’s likely this current crisis will further erode trust, that people will demand higher health standards from their accommodation – we’ll have to wait and see how Airbnb rises up to the challenge.

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