There has been a flurry of news that Airbnb is looking to raise more funds. There are plenty of suitors, with the latest estimate from Skift to be around 20 investors. No price has been mentioned so far, and most news outlets agree that Airbnb will get a valuation lower than the prior $31 billion.
The prevailing thinking is that Airbnb could be facing a liquidity crunch. Airbnb has $3 billion in cash and a $1 billion line of credit, but they have mounting losses.
Bloomberg reported that Airbnb is also looking to pick up distressed real estate companies.
Airbnb is actively looking at acquiring distressed companies, particularly short-term rental providers, one of the people said. One possible contender is Sonder Inc., a San Francisco-based startup that lists rental units on Airbnb’s website. Sonder’s bookings are projected to decline 90% as a result of the pandemic, possibly extending to 2021, another person said. However, two people close to Sonder said it hasn’t engaged in deal talks. “Sonder is not for sale or being sold,” a spokesman for the startup said.
Airbnb could be using the new funding not only to shore up its liquidity but its long-term competitive position. It would allow Airbnb to be an opportunistic buyer in this battered market.
Battered Market Provides Acquisition Targets
Demand has plunged and professional short term rental companies are making deeper cuts. Lyric, which cut 20% of its staff in early March, is downsizing further. According to The Real Deal, 80% of Lyric’s staff was told that if the economic conditions do not improve in two months, they may not have jobs. Lyric is trimming its portfolio to the 132 units at 70 Pine Street in New York City out of the 400 units it has around the country.
Sonder is expected to weather this crisis but has laid off 22% of its employees and furloughed another 11%, a total of 400 employees impacted this week, according to The Information. The company reported a 20% drop in bookings and we expect that percentage to rise. Sonder has 5,000 units in 30 cities globally. The Guild laid off 38 of its 175 employees and WanderJaunt cut 15%-20% of its 240 employees. Both are discussing rent concessions with landlords.
Some of the start-ups could become acquisition targets for companies such as Airbnb and Booking.
Supply Side Still Key for Airbnb
It makes sense for Airbnb to acquire professional hosts. Supply is key to Airbnb’s business model and one of the best ways to shore up supply is to create/buy its own. Airbnb may want more control over its supply.
Last May, Mike Ghaffary wrote an article on Airbnb’s marketplace model that highlighted the importance of the supply side.
It is true that as Airbnb was first scaling up the service and as they enter new markets, demand will follow supply, and unless they sign up hosts, the service isn’t valuable. However, as they reach critical mass of supply in their more mature markets, the balance of power might shift to guests who are faced with a multitude of options for properties to book.
While the supply of hosts was key to the initial success of Airbnb’s marketplace platform, the supply of properties remains crucial for the retention and defensibility of its business.
The cross-side side network effects for Airbnb are very strong, because Airbnb becomes much more valuable to its users if there are many properties to choose from instead of very thin inventory. As a user, if I’m going to book on Airbnb instead of looking at something like Booking.com and trying to find a hotel, I need many options to choose from to fit my budget, preferences, and desired location.
photo credit: airbnb