Robinhood and Airbnb: a tale of two tech companies navigating the global pandemic
Also, Trump just can't help himself with TikTok
“What a devastating couple of months this has been for all of us,”
wrote Airbnb CEO Brian Chesky in a March 31st letter to Airbnb’s thousands of hosts, who were outraged after Airbnb had guaranteed full refunds to guests who cancelled trips due to the escalating pandemic. In an expensive gesture of reconciliation, Mr. Chesky decided to refund all hosts 25% of lost revenue from March 15th through May 31st – amounting to a total of about $250 million.
It was neither the first, nor the last, of Airbnb’s pandemic-related expenses.
As Covid-19 spread through China in January and early February, Airbnb saw its bookings there plummet by 80%. Days after promising money to hosts, Airbnb turned to the private markets for emergency financing, announcing a $1 billion loan from two private equity firms with a hefty 10% coupon, following by another pricey $1 billion syndicated loan. In early May, with an uncontained global pandemic decimating the global travel industry, Airbnb laid off 25% of its workforce. The company’s plans for a 2020 IPO were, it seemed, ruined. (More on that shortly).
Robinhood’s Covid-19 experience has been smoother but not without moments of turbulence. In February, financial giant Morgan Stanley acquired retail brokerage E*TRADE in a $13 billion deal. By that time, E*TRADE (like other stock brokerages) had already followed Robinhood’s lead in slashing its trading fees to zero. The Morgan Stanley acquisition – like Charles Schwab’s $26 billion acquisition of TD Ameritrade – was in part a consequence of the zero-fee trading model that Robinhood pioneered. As Covid-19 ravaged parts of Asia and Europe, the seven-year-old trading app sat back and watched happily as the stock trading industry transformed – at its behest.
Like most businesses, Robinhood’s rosy outlook changed in March. As the U.S. went into lockdown, the company was less concerned about sagging consumer demand than it was about poor consumer experience. Robinhood’s app experienced system-wide outages on March 2nd, March 3rd, and March 9th. This, of course, was a particularly bad time for its app to crash. The heightened market volatility surrounding Covid-19’s emergence in the U.S. meant that investors couldn’t dump their stocks. The result was a horde of enraged customers and several class-action lawsuits.
Robinhood’s legal troubles, however, did not deter venture capitalists. The company raised $280 million at a $8.3 billion valuation in early May. A month later, Robinhood faced a PR crisis when a 20-year-old trader tragically committed suicide after seeing a negative $730,000 balance on his Robinhood account. The event raised questions about whether Robinhood was making it too easy for inexperienced traders to dabble in complex future contracts. But again VCs weren’t bothered, plowing another $320 million into Robinhood in July at a revised $8.6 billion valuation.
Airbnb’s Spring was brutal but things picked up in Summer. Americans were restless after two and a half months of quarantining, and state governments began relaxing stay-at-home ordinances in late May and early June. That’s when Airbnb bookings suddenly surged. “Airbnb saw more nights booked for U.S. listings between May 17 and June 3 than the same period in 2019, and a similar boost in domestic travel globally,” reported Bloomberg on June 7th. Airbnb’s quicker-than-expected return to pre-pandemic levels of activity – combined with investors’ insatiable appetite for tech stocks – meant an IPO was back on the table for 2020.
Which brings us to the denouement this week for both companies: Robinhood raised yet another round of private financing (a casual $200 million), this time at a staggering $11.2 billion valuation, and Airbnb has – at last! – confidentially filed to go public in what is likely to be an IPO in the tens of billions of dollars.
So, what does it all mean?
In their individual stories, Airbnb and Robinhood tell us something important about the state of technology, financial markets, and economic inequality in 2020.
Technology Companies are Immune to Covid-19 Dislocation: Tech companies have led the stock market rally since April, with the tech heavy Nasdaq exchange significantly outperforming the S&P 500 and Dow Jones indexes. Similarly the shares of Apple, Amazon, Alphabet, Microsoft and Facebook have risen 37 percent this year, while all the other stocks in the S&P 500 fell a combined 6 percent. Airbnb and Robinhood are privately held companies, but like their publicly traded peers, they benefit from being digital-first enterprises.
“Too Big To Fail” Extends to Privately Held Companies: Much has been made of the fact that leading technology companies (namely, those just mentioned) have become so integral to the daily lives of Americans, that in turn we have accepted their unprecedented market power. A version of this phenomenon is also happening in the venture capital world. The saga of WeWork is the most prominent example, but Airbnb’s easy access to $2 billion in emergency financing during a devastating trough in the company’s business cycle is another example of how the most well capitalized startups – backed by powerful and connected venture capital firms – can withstand market turmoil and access huge sums of capital to continue expanding, while smaller startups and SMBs all too often putter out.
Tech Startup Activity Reflects Economic Inequality: When Airbnb laid off thousands of its rank-and-file employees, it was in step with national unemployment trends as millions of laid off workers filed for unemployment benefits every week (a trend that is, of course, ongoing), all the while its founders and executive team remained multimillionaires and billionaires. And when Robinhood raised hundreds of millions of dollars in May and July, it was drawing on a seemingly bottomless well of VC cash – a stark contrast to the difficulties mom-and-pop companies faced in accessing government loans from the emergency PPP program. In short, startups are not inoculated from the unequal economic system in which they’re reared; and too often, they are (directly or indirectly) reinforcing that system.
Airbnb and Robinhood are emerging from the Covid-19 pandemic stronger than ever.
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“Well, I think Oracle is a great company, and I think its owner is a tremendous guy. He’s a tremendous person. I think that Oracle would be certainly somebody that could handle it.” – President Donald Trump
The commander in chief just can’t help himself. After shocking everyone with his statement that the U.S. treasury should “get a cut” from any TikTok deal with Microsoft, Mr. Trump re-entered the fray this week when asked about reports that Oracle, the computer software company, was mulling a bid for TikTok.
There’s one major, albeit predictable, caveat: Larry Ellison, the co-founder and chairman of Oracle, is a Trump donor and supporter.
For all his disavowing of “quid pro quos” during the Mueller investigation into whether the Trump campaign colluded with Russia to rig the 2016 election, Mr. Trump is not shy about rewarding his wealthy political backers. After the 2016 election, 38 percent of high-level government officials appointed were Trump donors, Politico reported. “The extent to which donors are stocking Trump’s administration is unparalleled in modern presidential history,” per Politico.
In other words, nobody should be surprised that Mr. Trump is trying to repay the favor to Mr. Ellison and Oracle – norms and ethics be damned.
Notwithstanding Trump’s questionable behavior, there are legitimate questions about whether a multi-billion-dollar asset like TikTok belongs in the hands of Microsoft, the second largest U.S. company by market capitalization (roughly $1.6 trillion). Amid growing bipartisan concern about consolidation among a handful of dominant technology companies (specifically: Google, Amazon, Facebook, and Microsoft), it might not be a net bad thing for a comparatively smaller player like Oracle – or Snapchat, or Twitter – to take control of TikTok.
Private Equity
“SoftBank builds $1.2 billion Amazon stake; invests in Netflix, Tesla: SoftBank Group Corp has built a stake worth around $1.2 billion in e-commerce firm Amazon, regulatory filings showed on Monday, as the tech conglomerate expands its investing activities beyond its recent focus on unlisted startups.” (Reuters)
“Investment Firm EQT Agrees to Purchase EdgeConneX for $2.5 to $3 Billion: Global investment firm EQT agreed Wednesday to buy EdgeConneX, a large data center provider, from investors including Providence Equity Partners. Financial terms weren’t announced, but Barron’s has learned that EdgeConneX sold for $2.5 to $3 billion.” (Barron’s)
“Bain Capital clinches $1.2 billion deal for Japan's Nichiigakkan after fending off higher bid: Bain Capital clinched a $1.2 billion deal on Tuesday to buy Japanese nursing-home operator Nichiigakkan after fending off a higher, last-minute bid from rival Baring Private Equity Asia.” (Reuters)
“Berkshire Partners Seeks $6.5 Billion for Newest Fund: Berkshire Partners, a Boston-based buyout firm, has started pitching its 10th midmarket fund, according to prospective investors and a regulatory filing.” (WSJ Pro PE)
“Big Lots Lease-Back Deal Said to Thwart Apollo Buyout Talks: Apollo Global Management Inc. was close to buying discount furniture retailer Big Lots Inc. until discussions fell apart, according to people with knowledge of the matter.” (Bloomberg)
Venture Capital
“Robinhood Now Valued at $11.2 Billion With New Fund Backing: Robinhood Financial raised new funding at a valuation of about $11.2 billion, as Dan Sundheim’s D1 Capital Partners poured $200 million into the online trading company.” (Bloomberg)
“Tech startups tied to Joshua Kushner received millions in relief funds: A deep-pocketed venture-capital firm run by Jared Kushner’s brother watched some of its tech startups rake in millions of dollars in federal coronavirus relief loans — despite the fact that it urged them not to take the cash, The Post has learned.” (NY Post)
“Wildlife Scores Vulcan-led $120M Series B Financing To Propel Mobile Game Platform: Wildlife Studios, which announced Friday a $120 million round of Series B financing—its second raise in eight months—bring[s] the company’s post round valuation to nearly $3 billion.” (CrunchBase)
“Keeper Security raises $60 million to protect companies from data breaches: Keeper Security, whose platform promises to prevent password-related data breaches and cyberthreats, expects to close (but hasn’t yet officially closed) a $60 million growth financing round sometime this week.” (VentureBeat)
“Restaurant rewards booking app Seated nabs $30M, acquires VenueBook to add events: Seated, which provides a restaurant booking platform that rewards customers with credits for gift cards at select other retailers like Amazon, Nike, Sephora and Uber when they show up to eat, has raised $30 million in funding, and alongside that it is also announcing it has acquired another industry startup, VenueBook, a platform for event planners to reserve space at restaurants and other venues.” (TechCrunch)
M&A
“Kabbage sells to American Express after halting lending: American Express is purchasing the online lending platform Kabbage for an undisclosed sum, as the card issuer aims to expand its product offering for small businesses.” (Financial Times)
“Sanofi to Buy Biotech Company Principia for $3.4 Billion: Sanofi agreed to acquire U.S. biotech company Principia Biopharma Inc. for about $3.4 billion as the French drugmaker pivots toward innovative therapies to spur growth under new Chief Executive Officer Paul Hudson.” (Bloomberg)
“Warner Music acquires IMGN, a social media publishing platform, for under $100M: Warner Music — with a market cap of $15.4 billion, one of the big three recording giants (alongside Universal and Sony)… is acquiring IMGN Media, a Tel Aviv and New York-based startup that builds and tracks viral social media content in categories like esports and gaming, ASMR and entertainment.” (TechCrunch)
“Occidental to sell some Colorado, Utah assets for $1.33 billion: Occidental Petroleum Corp said on Wednesday it will sell some of its Wyoming, Colorado and Utah assets to Orion Mine Finance for about $1.33 billion, as the oil and gas producer looks to cut the debt it took on with its purchase of Anadarko.” (Reuters)
“Diageo to Buy Aviation Gin, Backed by Actor Ryan Reynolds: Diageo Plc agreed to acquire Aviation American Gin and other liquors sold by Davos Brands LLC, which is co-owned by “Deadpool” actor Ryan Reynolds. The deal, for a total consideration of $610 million, is Diageo’s second acquisition in recent years of a Hollywood-backed spirit.” (Bloomberg)
“Amazon in talks to invest in cloud services company Rackspace: Amazon.com Inc is in preliminary talks to invest in U.S. cloud services provider Rackspace Technology Inc, people familiar with the discussion said on Monday. The deal would involve Amazon acquiring a minority stake in Rackspace, the sources said.” (Reuters)
IPOs
“KKR’s Academy Sports Confidentially Files For IPO: KKR & Co.’s sporting goods retailer Academy Sports + Outdoors has confidentially filed paperwork for an initial public offering that could happen as soon as this year, according to people with knowledge of the matter.” (Bloomberg)
“Casper Sleep’s CEO Krim Files for $300 Million Blank-Check IPO: Casper Sleep Inc.’s chief executive officer has filed to raise $300 million for a blank-check company after seeing shares of the mattress company he founded tumble 30% since its February debut.” (Bloomberg)
“EV Startup Canoo Says It Will Begin Publicly Trading In Late 2020: Canoo, a Los Angeles-based startup that plans to sell electric vehicles by subscription, has reached an agreement to merge with Hennessy Capital Acquisition Corp. IV and begin trading as a public company later this year.” (Bloomberg)
John Hyatt, author of What’s the Deal, is a financial writer and a Marjorie Deane fellow at NYU’s Arthur L. Carter Journalism Institute. Follow him on Twitter, connect with him on LinkedIn, email him your feedback at johngilberthyatt@gmail.com – and don’t forget to share + subscribe!