no one wants to be an ass
Once upon a time there was a far-sighted entrepreneur who, whilst waiting for his solar-powered floating leaf-catcher and light-attracted portable clothes drier to hit-the-big-time, decided to generate a bit of welcome cash on-the-side by renting out his spare bedroom. Boom! That light bulb moment was eventually to morph into the behemoth Airbnb and subsequently make a billionaire of its founder, Brian Chesky.
Fast forward eleven years and the company, which via its trading platform charges booking fees to both guests and hosts, up to 14% for the former and a modest 3% to the latter, collected revenues of almost $5bn last year and gained a much vaunted pre-IPO valuation of $42bn. Mind, will it come as any great surprise when I tell you that in its constant land-grab/kill the first born mindset, the business managed to lose $320m during the first nine months of last year? Thought not.
Covid-19 is going to have a dramatic impact on all businesses, on some it will be disastrous, and on Airbnb, with bookings down a reported 96%, it’s safe to say the door is pretty much slammed shut in its face. Now, for hosts who bought into the early ‘mon & pop’ vision, and who rent out their own spare room in the manner of a traditional B&B, lost revenue is going to be a bit of a fag. But, for those who have built up property portfolios, many on a ‘rent-for-rent’ basis (renting a long-term lease from one landlord with the intention of making a very healthy return via much shorter-term Airbnb lets to guests) and who rely on a constant churn, the current prospects spell nothing short of financial disaster. One particular host rented out a total of 881 properties in London during 2017, taking revenues of £12m.
It’s these landlords, in fact many of the 700,000 hosts, who are up in vociferous arms over the company’s generous decision allowing guests to cancel bookings for trips starting before 31st May, and to cover 25% of what the hosts would’ve received. To my simple mind, both elements seem entirely in keeping with today’s pandemic philosophy and the company, if anything, should be congratulated on its stance. However, in the longer term, with empty booking calendars stretching as far as the eye can see, there looks to be no winners in this buy-to-let game of Monopoly. The Wall Street Journal reported last week that the company’s stock market floatation, planned for later this year, is now in serious doubt and the valuation has already tumbled to less than $26bn. And, get this, if it doesn’t float, (or get bought), by November, options granted to most early members of staff are set to become worthless. Ouch.
So, the founders miss out on their big(ger) pay-day, employees lose money as they will have already paid for the majority of their options (albeit at a discounted price), recent staff will forgo any potential windfall bonus and those hosts that have gone into it as an absolute business where rents cover mortgage debt are well and truly in the sticky-stuff. My question to all is when exactly is enough, enough? My perhaps overly-pessimistic rationale in business has always been to hope for the best but plan for the worst. Was it necessary to wait until a $50bn valuation was on the cards before floating? Did you really need that twelfth property on your self-assessment tax return? When did doubling or even trebling your stake become too lowly a target? How many Lear jets can you own and Lambos can you drive? No one wants to be an ass but when did we all have to be unicorns? When did the founders’ initial harmless vision become so warped as to create an entity that is potentially going to take tens of thousands of people down?
And the $64,000 question: At some post-Covid-19 time in the future, will we finally see a return to a less rapacious, more benevolent form of supportive, realistic, neoclassical capitalism, one that was first envisaged by the likes of Adam Smith and that held our economic civilisation in good stead for centuries?