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Airbnb Raises $1 Billion, Will This Benefit Hosts?

[Updated: Nov 17, 2020 ] Apr 12, 2020 by Deidre Woollard
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Airbnb has seen bookings fall dramatically during the COVID-19 crisis. It has suspended bookings in some areas such as the United Kingdom, and in other locations such as the New Jersey shore and parts of Florida, short-term rentals are temporarily banned.

As a response to the ongoing drop in revenue, it paused marketing efforts, a move designed to save the company $800 million. Airbnb is not alone in facing troubles, several other vacation rental providers have announced layoffs and furloughs.

Airbnb's fortunes have shifted dramatically. Just a few months ago, it was preparing for an initial public offering (IPO). With the valuations of hospitality stocks plunging over the last several months, plans for an IPO seem like a distant memory. Last week, the startup, one of the core unicorns in the real estate space, announced that private equity firms Silver Lake and Sixth Street Partners will invest a total of $1 billion in the firm through a mix of debt and equity.

Airbnb was already fairly well funded, and this infusion will raise cash reserves to close to $4 billion. The Wall Street Journal reports that Airbnb may also raise an additional $1 billion. Airbnb is hardly alone in raising funds. Recently Redfin (NASDAQ: RDFN) sold $110 million in stock to help add to its cash reserves.

A change in direction?

Airbnb has said it will mostly use the funds to attract hosts. They are currently facing pressure on both the guest and host sides. Airbnb has said that it is setting aside $250 million to help benefit hosts who are struggling with losses, providing a 25% payment on canceled listings. They're also waiving fees on cancellations and offering travel credits to guests to encourage future stays.

The company has also created the Superhost Relief Fund, a $17-million program funded by Airbnb's founders, employees, and investors. This fund will offer grants to hosts who rely on Airbnb for vital income. The grants do not need to be paid back, and applications will open up at the end of April.

While its core business of booking short-term stays is on pause throughout the world, one thing Airbnb has done in the meantime to offer potential income for people who are stuck at home is to open Airbnb Virtual Experiences. This is an extension of its Airbnb Experiences platform, which offers wine tastings, city tours, and a wide variety of experiential offerings.

Airbnb may also be pivoting away from shorter-term rentals as part of this new strategy. In the press release announcing the $1 billion funding, Airbnb indicated that long-term stays -- along with attracting hosts and building out the experiences platform -- will become a core focus for the company. This may not be good news for all hosts, some of whom rely on the higher income they can earn through shorter stays.

The Millionacres bottom line

The return to normalcy may be slow for some people who relied on Airbnb to pay mortgages or other expenses. Some economists are forecasting that travel may not resume until late summer, leaving hosts in beach destinations without a core source of income. While there have been some reports of people choosing resort destinations for quarantining, it's expected that bookings will continue to remain low for at least the next several months.

Another potential worry for some hosts is that in some locations, such as apartment complexes, rules regarding short-term rentals may shift. Many apartment residents in large cities have always expressed reservations about having short-term guests in their buildings, and the concerns around COVID-19 and other viruses may lead some buildings or cities to tighten up their policies.

Airbnb's moves and the prospect of fewer vacation bookings may prompt some hosts to investigate potential alternatives for marketing their rentals or consider turning short-term rentals into long-term leases.

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Deidre Woollard owns shares of Redfin. The Motley Fool owns shares of and recommends Redfin and recommends the following options: short November 2020 $35 puts on Redfin. The Motley Fool has a disclosure policy.