Shares of Airbnb (ABNB -1.42%) are down 2.5% as of 2:45 p.m. EST Friday afternoon, and I have to say that even with the Nasdaq Composite Index going all helter-skelter on us today -- falling 2.5% initially only to turn around, and now heading for a 1% gain -- this is kind of a weird reaction investors are having to Airbnb's latest news.
You've probably already heard by now that Airbnb is seeking to raise some cash, right? On Wednesday, the company announced plans to float $2 billion in convertible senior notes due in 2026, although it didn't say at the time what kind of interest it was willing to pay on the debt.
Well, now it has. Just after midnight Thursday, Airbnb revealed that it will be paying -- better sit down for this -- a grand total of 0% interest on this $2 billion it is borrowing.
That's right. Someone has agreed to loan Airbnb $2 billion, to use as it likes for the next five years, and isn't charging Airbnb a penny for the privilege. Instead, the lender is hoping that at some point Airbnb will "convert" the debt into equity in Airbnb, such that for every $1,000 owed the company, it will get 3.4645 shares instead.
(Put down your calculators. Airbnb has already done the math for you: That works out to "approximately $288.64 per share of Class A common stock".)
Why wouldn't these lenders simply buy Airbnb stock now if they want it, at the company's $176 and change share price, you ask?
Presumably, the idea is that the lenders are placing a sort of call option on the stock, which they anticipate will rise in value to more than $288.64 over the next five years -- a 64% gain and then some -- but I honestly can't say for sure. That level of "high finance" is not for mortal ken.
In any case, though, investors today seem to be anticipating that a conversion will happen at some point, resulting in the creation of another 577,000-odd new shares of Airbnb stock, and diluting their own ownership interests accordingly. To me, at least, that seems the most likely explanation. Then again, on a stock with nearly 600 million shares outstanding, that works out to a tiny fraction of 1% stock dilution.
And it doesn't seem to me a very good reason to sell the stock today.