Silver Lake and Sixth Street Partners are to invest $1bn in Airbnb in a combination of debt and equity securities.
The move was seen as more evidence that Airbnb was planning to pull plans for its IPO as it found itself under what one observer described as an “existential crisis”, announcing a move into long-term stays.
Airbnb co-founder, CEO & head of community Brian Chesky described Silver Lake and Sixth Street Partners as having “a well-earned track record for being insightful thought partners who always have a strong sense of where the world is going.
“The desire to connect and travel is an enduring human truth that’s only been reinforced during our time apart. But the way this manifests will evolve as the world changes. We’ll see a new flexibility in how people live and work, which means they won’t have to be tethered to one location. And with an emerging interest in travel that’s closer to home, our customers will look to nearby places to visit, and for local experiences to take part in.”
Airbnb had planned to IPO this year, with a direct listing mooted, which would have allowed its investors to exit, without raising additional cash. Chesky commented before the current outbreak that the company did not need to raise money.
James Chappell, global business director, Horwath HTL, told us: “Airbnb is similar to WeWork in that its business model is predicated on an IPO - the need for institutional investors to exit and be replaced by retail investors. WeWork queered that plan - word on the street is that Airbnb were going to get out anyway, even if it meant dropping their valuation.
“It could be that now they’ve had to go to venture capitalists and are now at a very interesting point in their business plan. Before Covid-19 they had an issue, with the relationship with local government - through taxation and legislation - but the risk of that had been priced in. People understood that these issues were being addressed in a good faith way and not in a Facebook way.
“If the IPO is off then they are burning through cash and they have been smart in getting to the VC market before it dries up, but Silver Lake is not known for being warm and fuzzy. They are not going to give Airbnb as much money as they need and leave them to get on with running the business.”
Chesky announced that the company would be shifting its business model to long-term stays. He said: “From students needing housing during school, to people on extended work assignments, Airbnb is a place where many have found longer-term housing. In the future, dreams of living in another community will become a growing reality - in homes that come with the benefits of Airbnb.”
Research released last month by Airdna and RightMove found that landlords were moving back into the traditional rental market as the short-term market stalled, putting Airbnb’s portfolio at risk. Airdna said: “Let’s not avoid the elephant in the room: anecdotal evidence from many vacation rental owners is bleak. Bookings are down, cancellations are up, and the outlook for 2020 looks to be far less promising than initial projections.”
Chappell said: “With Covid-19 you have a whole generation who have built a business around having what are now empty businesses with large mortgages. They have realised that you can lose money as well as make money - they’re probably mortgaged up to the hilt. That is more of an existential threat to Airbnb.”
Silver Lake and Sixth Street Partners funds’ investment will include $5m which Airbnb will contribute to its Superhost Relief Fund, which will provide grants worth a combined total of $15m to Superhosts who rent out their own home and need help paying their rent or mortgage, as well as long-tenured Experience hosts trying to make ends meet.
Airbnb flipped on its refund policy in recent weeks, initially offering full refunds on bookings, before amending it, allocating $250m to pay hosts 25% of their cancellation fees in the case of some bookings.
Insight: So, is this the death of the short-term monster that was Airbnb, frightening hoteliers with its pop-up hotels and nightly hen nights? Well let’s see what they mean by long-term stays first. Airbnb is a big brand, but has little control over its destiny - the hosts are the ones with the supply and what they want has dictated what Airbnb offers. It cannot risk seeing its scope limited too far.
Of course what hosts want at the moment is longer-term stays because… they are the only ones they can get, so well done for Airbnb for leaping onto that bandwagon and best act quickly before they all flee. What the company appears to be offering is an asset-management package with added pottery courses and pasta-making. Have your long-term stay the Airbnb way. And as for those tricky legal issues with angry councils? Solved.
For Silver Lake and Sixth Street Partners, this streamlining provides them with an easy glide to their exit in five or so years’ time, with any number of hospitality groups no doubt happy to add the neutered Airbnb brand to their 30 flags. The beast is tamed.