- Direct listing remains preferred route, before employee stock options expire next year
- Convertible debt issue an option to strengthen balance sheet amid COVID-19 tailspin
Airbnb still hopes to become a public company in 2020 despite the global economic damage inflicted by the coronavirus pandemic, three sources familiar with its strategy said.
The San Francisco-based lodging marketplace wants to go public before the end of the year, and a direct listing remains its preferred path to the stock market, the three sources said.
A direct listing allows Airbnb to enter a venue where longtime executives and other employees can monetize their stock options before they expire and lose value in 2021, the sources said.
The company favored a direct listing before COVID-19 ground much of the hospitality industry to a halt, but it makes even more sense in the current climate, two of the sources noted. Airbnb can limit its float since it would not issue new shares or raise capital through a direct listing, they said, while giving shareholders the opportunity to quickly sell their stakes if they so choose.
Widespread customer cancellations on Airbnb’s platform, coupled with a mostly stagnant airline industry, has caused the company to suspend its marketing efforts, reduce pay, and cut costs. Airbnb also pledged to set aside USD 250m to help its hosts cover the cost of cancellations.
The sources familiar with Airbnb’s strategy said the company is determined to go public before the year ends, although all three cautioned there is no guarantee a listing will happen.
The company is well-capitalized with as much as USD 3bn in cash on hand, but to shore up its balance sheet and protect itself from a prolonged economic contraction, Airbnb may raise some form of capital in the private market in advance of a public listing, according to the sources. Airbnb also has a USD 1bn credit line it can draw from if needed, two of the sources said.
Raising equity could come with unfavorable terms given its challenges, two of the sources noted, so a convertible debt issue may provide Airbnb a better structure. Spotify [NYSE:SPOT] raised USD 1bn two years ahead of its April 2018 direct listing, they noted, and Uber [NYSE:UBER] raised USD 1.6bn in convertible debt four years ahead of its IPO in May 2019.