Airbnb is undoubtedly burning through all of its cash reserves with no income to make the money back. It’s impossible right now for any travel-related business to make any projection with any certainty about future revenue. Airbnb has used every financial strategy possible just to get this far. Now is also not a good time to ask anybody for money for anything. Airbnb’s solution to everything over the last ten years has been through taking new investors or, in the CEO’s words, “doin’ uh raise”. Airbnb has also been long rumored to spend way more money on headcount and officespace than they were ever making in revenue. The argument for that spending has been to facilitate long-term growth. However, that approach was a gamble that appears to have caught up with the company. Airbnb will inevitably need to close offices and reduce headcount. Drastically reducing overhead may not prevent the company from ending up in federal bankruptcy court. If I were an investor in Airbnb, I wouldn’t wait for the company to burn through all of its cash before coming up with a plan. Here’s how I might hypothetically deal with this situation now if I were a major shareholder in Airbnb or on its board of directors.
How Do You Keep On Paying People?
The central question, if I were on Airbnb’s board of directors or involved in its management, is: How does the company keep on paying employees when nobody can come to work and the company now has no foreseeable revenue going forward? The answer to that question is, quite simply, that it can’t. The best plan for helping its employees is for Airbnb to send out a letter to all employees explaining what’s going on and begin offering severance to buyout employee contracts.
The letter to all of Airbnb’s employees would include acknowledging that the company obviously can’t predict its financial situation going forward based on multiple factors beyond the company’s control. Those factors include the duration of the virus outbreak and impact, both sh0rt-term and long-term, that the outbreak will have on travel. Airbnb should also be upfront that it will need to reduce costs and that making a few deep cuts early on is better than making a bunch of shallow cuts over time. The letter may also indicate that if financial circumstances change for the better for Airbnb that any employees let go will be first in line to be re-hired.
Offering severance to buyout employee contracts is good for both Airbnb and its employees. The money would allow employees that choose that option some financial stability since they can’t go to work anyway. Offering severance now would allow those former employees to use their time at home to make new career plans. One approach to reduce headcount would involve starting with remote workers and offering severance to entire offices of personnel, which would also assist in reducing rent costs. Regardless of the approach, the company won’t need its current level of personnel anytime soon, if ever. Airbnb isn’t doing itself or its employees any good by leading them to believe that it can continue to keep on paying them indefinitely.
Rent and Advertising
From what little I’ve heard about this, and I may be wrong, Airbnb doesn’t own any of its offices. That would imply that the company is paying rent money for offices that are empty indefinitely. If that’s the case, then the company might consider consolidating its remaining personnel in fewer locations and buying out the leases to reduce costs. If Airbnb does own any real estate, then that’s likely the only asset the company has worth any real money. The company should either try to sublet the officespace, hold the real estate until it can get a premium for selling it, or both.
Advertising is another matter. The company probably has advertising contracts that require it to pay for a fixed amount of advertising on a routine basis. Airbnb has no money to spend on advertising right now. Even if it did, there’s absolutely no market of customers to advertise to because nobody in the world can travel. The company has no choice but to either breach its advertising contracts or make arrangements to modify/delay performance of those contracts.
Special Board Meeting
All of what I’ve mentioned is putting the cart before the horse, though. Airbnb’s board of directors should immediately demand a special board meeting, even if that means conducting it over the Internet or teleconference. If the current CEO does not have a specific plan to deal with the company’s sudden hemorrhaging of money, or even if he does, then I’d probably call for a vote to immediately replace that CEO with an objective company outsider that has specific experience in dealing with a crisis like this. Under the circumstances, given the current CEO’s complete lack of experience, it would actually be in his best interest, and that of the company and its employees, for him to voluntarily step aside on his own.
Airbnb legally belongs to its shareholders. Some of those shareholders are major institutional investors, investment bankers, and pensions that have invested peoples’ retirement funds into Airbnb. All of Airbnb’s shareholders needs a plan immediately to salvage any financial value from the company while there is still some value, and cash, left to be salvaged.
Federal Bankruptcy Protection
A company is bankrupt when its liabilities exceed its assets. At the current moment, it is foreseeable that Airbnb will no longer have the income going forward to pay its existing debts and burn-rate of expenses. The purpose of a corporate federal bankruptcy filing is to keep all of the petitioner’s creditors away while the company figures out a plan to repay its debts. Unless it executes on a well thought-out plan soon, or even if it does, Airbnb may beheaded towards bankruptcy.