Airbnb is getting hammered in the media. It is understandable that there is little good news these days for a company in the travel sector. There was shock when the WSJ reported that Airbnb’s valuation plunged to $18 billion from $31 billion in 2017, a time of start-up exuberance. Is the lower valuation surprising since almost every company has been scathed by this pandemic? When in the eye of the storm, everything looks dismal because one can’t see a path forward. While there are companies that will not survive this storm, Airbnb is not one of them. We think this crisis helps Airbnb clarify and solidify its brand DNA.
While Airbnb is paying a steep price for new money, the fact that two savvy investors – Silver Lake and Sixth Street Partners – are taking a $1 billion bet on the company is a vote of confidence. There is a rumor that Airbnb is looking for another $500 million to $1 billion. Why does Airbnb need this infusion of cash when it has billions on its balance sheet? The company may need money to weather the months ahead since no one knows when travel will resume. We think cash flow for operation is part of it. We also believe that Airbnb is shoring up cash (1) for initiatives that establish brand trust and (2) for opportunistic acquisitions.
Airbnb may have suspended official marketing, which is estimated to save $800 million, but there is no doubt it is rigorously marketing its brand. The various initiatives it has taken during the crisis are all brand building.
Airbnb stands to lose millions of dollars with the cancellation policy it has put forth that offers full refunds. The execution of the policy was far from stellar and provoked the ire of hosts. Airbnb could have offered travel credits instead of cash refunds and communicated better with hosts who felt blindsided and had no input on how to recoup their earnings.
Airbnb has since tried to make up with hosts by lobbying Congress and providing a $265 million relief program. Its actions crafted in the height of a crisis, while not perfect nor always timely, show the kind of company it is or becoming. The company is building goodwill/brand trust for the long haul and is not afraid to take short term hits.
We wrote in late March that Airbnb could be using the new funding to shore up its long-term competitive position. The cost of capital is high in a down market. Yet, it is critical to have cash for opportunistic acquisitions in a battered market. The high cost of capital will not matter as much if the payoff is greater.
Technology writer Om Malik in his The Bull Case for Airbnb’s Future put forth another interesting case. He wrote:
If Airbnb thinks of itself as an “experience company,” then they can ride out the storm and even figure out a way to grow in these isolated times.
Pico Iyer, one of my favorite writers, wrote it best: “Travel is not really about leaving our homes, but leaving our habits.” It is a chance to experience new places, cultures, food, and ideas. Airbnb has to help enable that idea of experience, even if it means doing it from the confines of our homes.
In other words, Airbnb should be using its enormous resources to transform itself into a company that is no longer just about in real life. Its treasure trove of data should allow them to offer up their tasteful version of Travel TV or Food Network. How about an Airbnb version of MasterClass featuring artisans and artists elsewhere around the planet?
If I have to cook, why not learn to make pasta from an expert? How about learning painting from an artist currently stuck at home in Paris? How about a solo concert by a pianist? Airbnb has the audience, technology infrastructure, billing infrastructure, payment systems, and global relationships to offer a scalable platform for virtual experiences. Right now, we are putting up with Zoom for our entertainment and education. Why not have something better?
Airbnb has a great brand, the crisis may just make it better.
photo credit: airbnb