Airbnb, the ‘gig economy’ home sharing service that was born from the ashes of the last financial crisis a little over a decade ago has raised a $1 billion cash injection to tide it though the Covid-19 pandemic lockdown. The company’s income has almost completely dried up over the past several weeks as a large majority of travel, both for leisure and business purposes, has ground to a halt.
The cash comes from two American private equity houses, Silver Lake and Sixth Street Partners, and will be used to cover losses until the temporary accommodation market recovers. Part of the funds will also be diverted towards Airbnb’s planned financial support for its network of ‘hosts’.
One of Silicon Valley’s most successful technology start-ups, Airbnb was last year valued at $31 billion. One of the standard bearers of the ‘gig economy’ that evolved out of the 2008-09 international financial crisis, the Airbnb platform ‘disrupted’ the hotel industry. The platform allows private home owners to list spare rooms or whole properties as an alternative to hotel accommodation.
The platform has become a sub industry in itself and, like Uber, a noun in contemporary vernacular – “are we booking a hotel or Airbnb”? Airbnb makes money by taking a share of each booking made over its platform. It’s proven so popular that a whole host of other start-ups have sprung up around the platform. Examples include software algorithms that help Airbnb landlords optimise their prices by benchmarking them against hotels and other Airbnb properties in the area, and booking management and cleaning companies.
The platform has also attracted criticism and been accused of pushing up the prices of properties in tourist hotspots and further adding to the deficit of affordable long-term housing. Neighbours of Airbnb landlords also complain about a stream of strangers having access to non-commercial residential buildings.
But overall, the Airbnb concept and brand is well regarded and the company has been a major success over the last decade. The $1 billion funding was announced on Monday and comes in the form of a combination of debt and equity. Terms were not disclosed.
Airbnb co-founder and CEO Brian Chesky said the funds would be used to financially support hosts during the Covid-19 lockdown, develop new offers for student accommodation and professionals on longer business trips or assignments lasting weeks to months. Part of the cash will also be used to develop Airbnb’s new ‘experiences’ business, that will allow hosts to offer entertainment and activities such as city tours and surfing lessons as well as just accommodation.
The company was expected to go public through a much anticipated IPO later this year but the coronavirus emergency may now delay that until 2021 or later. However, it’s also not impossible for the offering to go ahead if markets bounce back strongly when life starts to return to normal.
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