Airbnb approached for blank-cheque acquisition company merger

US: Airbnb CEO Brian Chesky has revealed the company was recently approached about going public via a merger with a blank-cheque acquisition company on a Reuters Newsmaker webinar on Wednesday.

Mergers with so-called special purpose acquisition companies [SPACs] are seen as a relatively new but increasingly popular way of listing on the stock market. SPACs are shell companies that use the proceeds from IPOs and debt to acquire another company, and have gained traction as a quick-fire route to the stock market within two or so years for firms that are concerned about the length of the IPO process.

Chesky said: “We’ve been approached by some people that have presented us some opportunities. We’re looking at everything so I probably shouldn’t speculate too much on it.”

In conversation with Gina Chon, columnist at Reuters Breakingviews, and Rob Cox, global editor and columnist at Reuters, Chesky declined to comment further on the IPO process while the market was still in the middle of its recovery, although admitted his co-founders had yet to make a “definitive determination with regards to raising additional capital”. He also cited Slack and Spotify as two companies who had set precedents for going public with a direct listing but there were none in the travel space for Airbnb to replicate.

The CEO revealed that Airbnb had been ready to file for going public around 31 March, but that decision had to be put back as the company had to “firefight” as a consequence of losing 80 per cent of the business in the space of six weeks or so in the initial stages of the pandemic. As the business sought to navigate the crisis, Airbnb raised $2 billion of capital in the form of debt, with investment from the likes of Silver Lake and Sixth Street Partners.

During the hour-long webinar, Chesky, Chon and Cox addressed a number of topics relating to Airbnb’s handling of the fallout of the coronavirus outbreak, including its support for guests and hosts and the “very difficult” decision to lay off 25 per cent of the company’s global workforce.

How was Airbnb affected by the pandemic and what had it promised for hosts and guests?

According to Chesky, Airbnb’s European business was of the most significant to “plummet”, and on the day the World Health Organisation [WHO] officially declared Covid-19 a pandemic, the company got more than $1 billion in cancellations from guests who needed money to pay their rent and mortgage.

“When business drops by 80 per cent, it’s like slamming the brakes on a car at 100mph,” he said. “This was a bigger moment for travel than 9/11 and the 2008 crash combined, and more disruptive for US travel companies like Marriott than even World War Two.”

Pushing ahead, the co-founders sat down to write out specific “principled” rather than business decisions, to “do the right thing to serve stakeholders and help guests who aren’t able to travel but felt compelled to because of refunds”.

With Airbnb “haemorrhaging” cash, it made the decision to refocus its business plan by returning to its original roots of connecting and bringing together, something that Chesky labelled a “big awakening” for him.

However, as business kept going down, he acknowledged that Airbnb would not be able to afford to keep everyone at the company with the overhanging uncertainty of when travel would recover and what it would like as we emerged from the pandemic. In May, it announced a sizeable layoff of 1900 employees, approximately 25 per cent of its global workforce.

How do you plan to keep connecting people?

Going from planning from year-to-year to day-to-day, Chesky said his immediate priorities following the outbreak were to preserve Airbnb’s guests, hosts and reputation, take them on a journey and protect shareholder value. In doing so, he admitted that while it was impossible to make everyone happy with every decision, it was important to make “a lot” of decisions that could be aggregated to balance out across everyone.

In likelihood, Chesky was referring to Airbnb’s U-turn in introducing a cancellation policy which would enforce refunds for guests, but left hosts angry at the late notice with which they were notified and the threat of being left out of pocket.

Following that, Airbnb’s co-founders said they took $250 million out of their own money to send to hosts as part of a new “Superhost Fund”, where hosts can apply to get grants of up to $5,000 to offset their losses from the cancellations. Employees also came forward to pledge $1 million of their travel credit to give to their hosts, and hosts and investors added extra funds to increase the figure to $17 million.

Chesky said Airbnb would continue to attract and connect guests with hosts as long as it was providing a unique product that they could not get anywhere else.

Could you [Chesky] have saved more jobs while you raised money?

Chesky said: “For a company rooted around belonging, this was a very difficult thing to confront.”

After business dropped by 80 per cent in the space of six weeks, Chesky said Airbnb was faced with a situation between a “recession and a depression”, where the best scenario would be to make 50 per cent of the revenue it generated the previous year.

The company cut costs almost across the board, including stopping transportation [flights] for the foreseeable future, pausing all travel content and scaling back investment into hotels, its mid-tier Airbnb Plus product and its Luxe tier. Anything that was not part of its core offering was stripped back.

In order to navigate this crisis, Chesky revealed the company had made layoffs in mind to cut “not too deep but deep enough to make us think we would not have to do another one”. Laid-off employees were offered support such as personal phone calls, letters, extended health insurance and access to a talent alumni directory.

When will travel come back and what will have changed?

Despite the challenges posed by the consequences of the pandemic, Chesky said he was “incredibly optimistic for the future”, given bookings had far exceeded his expectations, to the extent they “almost defied logic”. Such was the surge that one million room nights were booked in one day on 8 July, according to the CEO.

Whether this was pent-up demand of people just wanting to simply get out of their house or instead the shoots of a sustained recovery for travel, travellers are showing an increasing desire to travel, particularly in drive-t0 destinations if they are cautious about stepping back on a plane.

On the subject of the future travel trends, Chesky said:

  • There would be a significant “travel redistribution” as travellers vacate more central districts to visit smaller towns and cities. Dovetailing that, there would also be population distribution, where people would book more stays in private spaces in suburbs, meaning that Airbnb would no longer be seen as the ‘riskier’ option for accommodation.
  • The pandemic had been a large “reset” moment, and people would be dispersing to areas that want to boost their tourism
  • Airbnb wants to be “part of a solution, not part of the problem”.
  • Recent months would lead us to consider what type of world we want to live in – “do we want people to flood communities or do we want them to feel part of a community and give into it?”
  • Chesky saw this as a “very important opportunity” to rebuild Airbnb’s relationship with core cities and make concessions with them

How would that change if you become a public company?

While Chesky conceded Airbnb “could have done more sooner”, he believed society wanted Airbnb to exist and continue to connect guests with hosts around the world. In order to successfully this latest crisis, however, the company would have to be “more than a platform” and be responsible for all of the activity on it.