The Information reported last week that Airbnb plowed through a higher than expected $1.2 billion of cash between mid-2019 and mid-2020.
This explained why the company was willing to pay a high-interest rate on $1 billion of debt from Silver Lake in April to shore up its cash position despite having $3 billion in cash in October 2019.
We will get a fuller picture of Airbnb revenues and expenses when their IPO filing becomes public in November. In the meantime, the financial documents seen by The Information provide some visibility to Airbnb’s financial health.
The pandemic was a wake-up call for Airbnb. It had taken on a growing number of initiatives and spent rampantly. As the pandemic wiped out revenues and cash levels dwindled, the company had to pare back quickly and refocus on its core business and curb spending to avoid a collapse.
Airbnb’s cash position was dire according to The Information.
The cash drain wiped away more than a third of what the company had on hand as of March 2019. The biggest portion of the cash burn came in the first quarter of this year, when the company had to dole out travel refunds as Covid-19 broke out, underscoring how the pandemic depleted Airbnb’s reserves.
Airbnb burned twice as much cash as the $408 million that Booking burned through in the first half of the year. But Expedia, owner of Airbnb’s leading rival, Vrbo, burned through more than $3 billion.
Booking fared much better than Airbnb and Expedia because Booking collects money on each reservation after the stay, which reduced the impact of travel refunds on its balance sheet.
Airbnb’s second-quarter revenues dropped sharply and spending cuts weren’t enough to offset.
Airbnb’s revenue tumbled 72% in the second quarter compared with the year-earlier period, to $335 million.
But the spending cutbacks weren’t enough to offset the plunge in revenue once the pandemic struck. Airbnb burned through $850 million in the first half of this year, compared with positive free cash flow of about $400 million in the first half of last year, the documents show. Free cash flow is typically defined as a company’s net cash provided by operating activities, less money spent on property and equipment.
In the beginning of May, the company laid off 25% of its roughly 7,000-person staff. Marketing and customer service teams felt the brunt of the cuts. The financial documents reveal for the first time where exactly Airbnb reduced spending in the second quarter to try to offset revenue decline, with the biggest cuts coming from customer service and marketing. Cost of revenue, a metric that reflects fees paid to credit card companies and other service providers, also fell as bookings declined.
Airbnb also was hit with other expenses including restructuring charges and write-downs for poorly performing investments.
A big expense for Airbnb in the second quarter, according to its income statement, was a $114 million restructuring charge, which likely includes employee severance. A large noncash expense in the first half of this year was stock-based compensation, which grew by 147% to $79 million from the same period last year.
The company also accounted for a $53 million noncash investment impairment charge in the first half, likely due to a decline in the value of investments in travel startups including Oyo, Lyric and Zeus Living, all of which have struggled.
With the cash infusion, Airbnb ended June with $4.1 billion in cash. The spending cuts and the cash infusion, along with a faster than expected recovery in its business, Airbnb now appears to be in a far healthier financial position.
photo credit: airbnb