I can’t believe it could be one of the world’s most successful startups in such a difficult situation
The well-known rental service Airbnb could run out of cash in a year, despite raising $ 1 billion from investors a year ago. Coronavirus can be disastrous for a startup.
Earlier this month, it became known that AirBnB raised $ 1 billion in investment from Silver Lake and Sixth Street Partners. But the coronavirus epidemic and the associated economic downturn have affected the company’s business so much that its existence is still under question.
The outbreak of COVID-19 has destroyed the tourism industry worldwide. Most governments have urged their citizens to stay indoors to stop the spread of the virus. In the United States, like many other countries, enterprises are closing down and large numbers of layoffs occur. All of this reflects a long recession. Different industries and companies of all sizes need to evaluate whether they have sufficient funds to survive the crisis. According to Business Insider experts, Airbnb may run out of cash during the year, depending on how much the company’s revenue will suffer and how much Airbnb can control its costs.
A sharp turn of fate
A few months ago, Airbnb was considered one of the most successful startups in the world. With a proven business model and success story, the company was preparing for an IPO in 2020. Coronavirus has made adjustments to these plans. Airbnb has turned to private investors for new financing. Under the deal announced last week, AirBnB will receive $ 1 billion from Silver Lake and Sixth Street Partners. The company did not disclose how it used the fund. But it is known that $ 5 million will go to the fund created to fund its super hosts, which provide popular and highly valuable accommodation through the host AirBnB service. This will enable them to pay the mortgage, rent and utilities.
Airbnb Stocks and Cost
To understand why AirBnB’s prospects are not bright, you have to look at the company’s reserves and its costs. What do you know about this?
As a private company, Airbnb does not publish its financial statements. But according to The Wall Street Journal, third-quarter results, Airbnb had $ 3 billion. And as of the fourth quarter results, according to Bloomberg, the company had $ 2 billion. Thus, taking into account new investments, the company’s cash reserves would be the worst. Case, $ 3 billion and best – $ 4 billion.
This is a lot of money, but also less than the annual income of the company. In 2019, AirBnB sales were approximately $ 4.8 billion. Now, the company’s business was hit by an epidemic. About 90% of bookings made via Airbnb were canceled between 18 March and 7 April. Many cancel their trips for May and summer. Hence the income of the company is currently very low or equal to zero.
At the same time, the ongoing expenses of AirBnB have not gone away. The company has thousands of employees, among other things, the costs associated with supporting the operation of the office and its online service in San Francisco. Last year, these expenses exceeded the company’s revenue and, according to analysts, were $ 5.1 billion, or about $ 1.3 billion per quarter. Thus, through simple calculations, we see that AirBnB’s cash reserves at the same cost will run out in less than a year.
However, this is the worst case scenario. Some reservations are still being made through the Airbnb website. Booking accommodation in rural areas for some users, especially urban residents, 30 to 60, and even 90 days in hopes of overtaking quarantine. In addition, the company is cutting its spending. First, marketing expenditures were cut, bonus payments were frozen, and recruitment of new employees was temporarily suspended. According to various estimates, only a reduction in the marketing budget would save the company $ 800 million this year.
Will everything be alright?
After analyzing the company’s expenses and their potential shortages, we get another positive scenario. But even he suggests that the company would have sufficient cash reserves for a maximum of six quarters. It is hoped that the economy will recover, or that AirBnB will be able to attract more investment. Many analysts believe that if a company survives this crisis, it will become stronger than before. In the meantime, it remains for us to observe the situation and not believe that one of the most successful startups in the world can be in such a situation.
Based on materials from Business Insider, The Wall Street Journal, Bloomberg
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