What’s Going On Here?

Airbnb welcomed a new $1 billion investment this week as private investors helped the accommodation marketplace #stayhome and #stayalive during the coronavirus pandemic.

What Does This Mean?

• Neither Airbnb nor its two new investors gave all the details, but they did reveal that the investment was a mixture of equity and debt, which will need to be repaid with interest.
• Like most of the leisure and hospitality industry, Airbnb’s not making much money during this pandemic. But unlike a lot of the industry, Airbnb didn’t necessarily need more cash: the company has around $2 billion in the bank, along with a $1 billion overdraft.
• Some analysts, then, reckon Airbnb might use the fresh cash to buy out smaller rivals – a route the company’s taken in the past.

Why Should I Care?

For markets: Bullet dodged.

• Shares of some public companies in the travel and leisure industry had fallen as much as 50% from February’s stock market peak – and if Airbnb had listed its shares alongside them, its valuation would’ve likely suffered a similar fate.
• Instead, the home-sharing company reportedly lowered its own assessment of what it was worth last week, which may have helped attract opportunity-hungry private equity investors with mountains of idle cash.

The bigger picture: Direct to investors.

• Airbnb was reportedly considering a “direct listing”, which differs from a traditional IPO in that it doesn’t actually raise the company any money from the sale of new shares.

IPO and direct listings are two methods for a company to raise capital by listing shares on a public exchange.

While many companies choose to do an IPO, in which new shares are created, underwritten and sold to the public, some companies choose a direct listing, in which no new shares are created and only existing, outstanding shares are sold with no underwriters involved.

• If Airbnb had needed to shore up its bank balance by raising money, it would’ve had to plump for an IPO instead, and its early investors would’ve been “locked up” – unable to sell their shares – for some time.

Content source: Finimize. (2020) AirbnBillion. Available from: https://www.finimize.com/wp/news/airbnbillion/ [Accessed at 8 Apr, 2020]