Virus outbreak delivers tech darlings a harsh reality checkApril 8, 2020
Just as the coronavirus outbreak has boxed in society, it’s also squeezed high-flying tech companies reliant on people’s freedom to move around and get together.
Since the beginning of March, for instance, Uber shares have lost a quarter of their value. Rival Lyft is down 28 percent. Over the same period, the S&P 500 has fallen just 10 percent, even with wild swings along the way. The picture is even less clear for other, still-private “unicorn” companies once valued at more than $1 billion, such as Airbnb and WeWork.
“What market pressure will mean for all companies is survival of the fittest,” said Allen Adamson, co-founder of the marketing firm Metaforce and a business professor at New York University. “If you are going into this storm in a bad shape, it’s not going to be pretty.”
Just few weeks ago, Airbnb was poised to cash in on a soaring stock market with its highly anticipated public offering. But with the market now reeling and few people looking to anywhere but home, Airbnb is reportedly racking up millions of dollars in losses while fending off a backlash from hosts who rely on its service to survive.
Hosts were furious when the company told guests they could cancel their stays without penalties. Last week, Airbnb agreed to pay hosts $250 million to make up for some of the money lost to cancellations.
AirDNA, a data firm that helps property owners set rental rates, says the impact on U.S. Airbnb hosts has been mixed. In New York City, bookings dropped 66% in March, but in outer suburbs they were up as people fled the city. Bookings in Westhampton Beach, N.Y., jumped sixfold. Similarly, bookings in the city of Chicago fell 11% last month, but in St. Joseph, Michigan – a lakeside community within driving distance – they were up by a factor of four.
The company got a lifeline of sorts on Monday, when two private equity firms – Silver Lake and Sixth Street Partners – invested $1 billion in debt and equity in the company. The firms say they expect Airbnb to emerge from the crisis in a stronger position.
The Wall Street Journal reported on Tuesday, however, that the company will pay interest of more than 10% on those loans and that it has made a “verbal commitment“ to reduce fixed costs and to bring in supplemental management – terms that often mean layoffs and other cost-cutting. Airbnb didn’t immediately respond to a request for comment on the Journal report.
Uber, meanwhile, is trying to reassure jittery investors than its aggressive expansion plans for ride-hailing remain on track. Like its rival Lyft, it has seen ride demand hit a wall as states ratchet up stay-at-home orders. Both companies are trying to conserve cash so they can weather the pandemic’s fallout, in part by emphasizing deliveries of food and other goods.
Even in its worst-case-scenario – an 80% decline in ridership through 2020 – the company said it would end the year with $4 billion in…