Can Brian Chesky Save Airbnb?

Chesky has taken some decisive steps to stanch the bleeding, including halting most of Airbnb’s $800 million annual marketing outlay and cutting executive pay. The company last week raised $1 billion in debt, accepting a punishing 11% interest rate, to pad its reserves. More borrowing is in the works.

And executives are contemplating moves once considered off-limits at Airbnb, including layoffs and shutting some offices overseas, a person close to the company said.

Despite those measures, there are signs that Chesky is painting an overly optimistic picture of Airbnb’s recovery. In recent days, the company told investors that it expects business to bounce back in the second half of this year, and that even after this year’s wreckage, revenue would climb to $5.5 billion in 2021, a 15% increase over 2019. The company has envisioned other scenarios, some more pessimistic, the person close to the company said. 

For now, Airbnb bookings have plummeted, with the number of reservations down 85% in the first week of April compared with the same period last year, according to a sample of half a million properties analyzed by Transparent, a market research firm. Airbnb has allowed travelers to cancel upcoming reservations for a full refund, and is partially reimbursing hosts who were counting on that income. 

The sudden turnabout must be especially jarring for Airbnb, which came of age at a moment when young consumers were increasingly looking to spend money on travel, said Christa Quarles, former CEO of OpenTable.

“They were among the very best at mission and storytelling for what they were trying to accomplish. Now, when the mission is radically questioned, how do you manage?” said Quarles, who now works in private equity. “What will be hard is the curtailing of ambition,” she added. “They are really going to have to drastically rethink what is necessary and what is not.”

This article is based on interviews with more than 20 people who currently or formerly worked in senior roles at Airbnb, as well as several other individuals close to Chesky and the company. 

Tough Terms

Chesky’s decision last week to accept a high-interest loan from two investors, Silver Lake and Sixth Street Partners, underscores the company’s difficult position. The alternative, a person familiar with the matter said, was a deal with another investor for convertible debt that would have paid out a larger equity stake in Airbnb. Silver Lake and Sixth Street will have the opportunity to buy shares that would give them a 1.25% stake in the company.

Booking, Airbnb’s publicly traded rival, said Thursday it was raising more than $3 billion of debt, at interest rates of between 4.1% and 4.625%. Booking is “in a better position to maintain staff today and invest in the recovery” than Airbnb in part because it raised debt on better terms and has more cash, wrote Cowen & Co. in a research note. 

Chesky has sought to reassure employees and investors. When the Wall Street Journal reported last Wednesday that some investors would put more money into Airbnb if Chesky gave up some voting control or brought in executive help, Chesky forwarded an email from Kenneth Chenault, the former American Express CEO who sits on Airbnb’s board of directors, to the company’s employees. 

“Brian and the leadership team have the Board’s full confidence and support and we strongly believe in the long term future of the company,” Chenault wrote.

“I feel even more grateful for our board right now,” Chesky wrote when he forwarded the email. Airbnb spokesperson Nick Papas said no one made requests regarding Chesky’s leadership role to the company or its advisers.

Powerful Friends

Until recently, the company’s extraordinary success has insulated Chesky and his two co-founders, Joe Gebbia and Nate Blecharczyk, against pressure from investors. Together, the three founders own about one-third of the company and have amassed voting power that gives them significant control. Chesky also has high-profile friends. He told employees last month that he speaks regularly with former President Barack Obama, even during the coronavirus crisis.

But scrutiny of the company’s performance has intensified over the last year as warning signs have emerged. Growth has slowed as cities have cracked down on Airbnb operators, limiting the supply of new listings. 

The terms of last week’s funding value Airbnb at $18 billion, a far cry from the $31 billion valuation in the company’s last fundraising in 2017. Airbnb was aiming even bigger: Around the time of the 2017 fundraising, the company told investors and bankers that it forecasted it could go public in 2019 at a $46 billion valuation, with $6 billion in annual revenue, according to a presentation viewed by The Information. 

Eventually the company revised its expectations downward. In 2019, Airbnb lost hundreds of millions of dollars as it ramped up hiring and marketing. Late last year, the company’s board of directors told Chesky he needed to reduce marketing costs and shut down some of its exploratory businesses, said two people familiar with the matter. 

Early investors have stuck by Chesky and his vision. That includes influential board members Jeff Jordan of Andreessen Horowitz and Sequoia Capital’s Alfred Lin, whose firms are the two largest outside shareholders and stand to make large windfalls if Airbnb goes public. 

Jordan, in an interview with The Information last month, praised Chesky, pointing to recent hires of executives from Amazon, Disney and Liberty Media. “Since we’ve been investors, he’s consistently been effective at being a wartime CEO,” Jordan said.

A CEO’s Other Bets

People who have worked with Chesky said he has spent significant time focused on the in-the-weeds design details and marketing of new initiatives.

But as Airbnb’s core rental business has run into headwinds, attempts to broaden the business with travel tours and luxury accommodations have fallen short of expectations. Launched in 2016, the Experiences initiative, which involves arranging cooking classes and other activities for travelers, is still a sliver of Airbnb’s overall business, representing less than 1% of Airbnb’s roughly $5 billion in revenue last year.  

To reduce costs, Chesky has had to pull back work on other exploratory efforts he championed, including a television production studio and a private aircraft rental business, people familiar with the matter said. 

Investors and others close to the company also have questioned whether Chesky relied too heavily on loyal insiders when making appointments to top posts.

Attempts to broaden the business with travel tours and luxury accommodations have fallen short of expectations.

In early 2018, he appointed Belinda Johnson, Airbnb’s legal affairs chief and a longtime Chesky confidante, as chief operating officer. Well liked by employees, she was the most visible female executive and helped the company get through its earliest policy battles.

But she was a controversial choice as COO. Some investors and executives thought she didn’t have sufficient operational experience. Some people who worked with her said that Airbnb didn’t move quickly enough during her tenure to curb costs in some areas, including payouts for host damages and employee travel. General and administrative spending grew 68% in the first nine months last year, more than double the company’s revenue growth. She left the COO role late last year and joined the company’s board of directors, citing a need to spend more time with her children.  

Another polarizing executive is Joe Zadeh, an early Airbnb employee who led important initiatives like an effort to make it easier to book Airbnb homes. He rose through the ranks to lead the Experiences business unit. It was a prime position, in which he was in charge of helping to fulfill Chesky’s goal of transforming Airbnb into a company that, like Apple, had multiple large lines of revenue.

Yet Zadeh’s gruff management style hung over the Experiences group as it struggled to meet expectations. He often talked down to employees and yelled in meetings, people familiar with the matter said. 

At least one employee complained to human resources about Zadeh’s behavior, a person familiar with the matter said. The Experiences group had heavier turnover than other parts of Airbnb. Zadeh’s hard-charging tactics had plenty of defenders, including Chesky. One person who worked for Zadeh said his attitude improved after executive coaching. 

Zadeh stepped down as head of the unit last fall, but remained with the company as “chief stakeholder officer.” 

Disappointing Results

By that time, the division was underperforming. Experiences generated less than $35 million in revenue in 2019, a person familiar with the matter said, short of an early-year goal to hit upward of $40 million. A few years ago, executives believed Experiences could be bringing in hundreds of millions of dollars in revenue by 2019, another person said. The group also experienced significant losses last year, though Airbnb previously had said it would be profitable in 2019.

Douglas Atkin, a longtime Airbnb executive who worked closely with Chesky, described the CEO as more “empathetic” than other tech executives. “He has sometimes been a bit slow to get rid of people,” said Atkin, who was Airbnb’s global head of community from 2012 to 2017. He didn’t name anyone specifically. “He feels for them. He empathizes with their situation.”

Some inside the company, as well as investors, still believe Experiences eventually could live up to Chesky’s expectations. At the start of the year, the CEO brought in a new adviser, Hiroki Asai, the former creative director of Apple, who worked closely with the late Steve Jobs. Asai advised the company on its marketing and design strategy, and helped plan a big marketing event focused in part on the Experiences business that was supposed to take place this spring. 

Paul English, who co-founded travel booking company Kayak, said he is a fan of Chesky, but the Airbnb CEO hasn’t proven his ultimate vision of broadening the business. “If they want to be a $100 billion company, [Chesky] needs to be an architect of multiple brands, and I haven’t seen him do that yet,” said English, who later co-founded Lola, a travel startup. He said the Experiences business was “smart…from a brand-positioning perspective, but not from a revenue perspective.”

Leaders Clash

Airbnb had planned to go public this year, a step Chesky had long resisted, faulting the emphasis on what he has called “short-term financial interests.” Tension over the timing of a stock market listing caused disagreements with former Chief Financial Officer Laurence Tosi, who argued in 2017 that the company was ready to go public over the next year. Tosi left Airbnb in early 2018. 

Chesky has already become rich from Airbnb. Each of the co-founders cashed out about $40 million in the company’s early days, a person familiar with the matter said. While Chesky’s friends say he doesn’t appear to care much about money, employees say they are conscious of the wealth gap between them and the founders.

The company has restricted employees from selling their shares in recent years. In online forums, former Airbnb employees have expressed panic about the fate of their equity. The delayed public debut throws into question whether some current and former employees whose stock grants are expiring by the beginning of next year will miss out on a payday.

Even as Airbnb grapples with a sharp fall in revenue in the short term, its hopes for a turnaround once the pandemic subsides will hinge partly on retaining the hosts who rent homes to travelers. One fear is that those property owners and managers will seek to convert their houses and apartments into traditional long-term housing rentals, which might provide a more reliable income stream. 

In the meantime, Airbnb employees over the past month have quickly tried to adapt to a world where no one is traveling. Staff working on Experiences have been trying to make cooking classes available online. The company has hastened work on a part of its site that offers long-term stays rather than quick tourist jaunts. Airbnb said it saw a 20% uptick in the last two weeks of March in bookings for stays lasting 28 days or longer.

Meanwhile, Airbnb is in discussions with investors to borrow an additional $750 million to $1 billion at an effective interest rate of about 10%, people familiar with the matter said. It is “first lien” debt that the company would need to pay back before other loans. 

Papas, the Airbnb spokesperson, wrote in an email that the company wasn’t “hunkering down but moving forward” during the pandemic. Its recent debt financing, product launches and cash payments to hosts puts the company in a strong position to bounce back after the pandemic abates, he wrote. 

Chesky tried to calm workers’ fraying nerves as the company saw continued drops in bookings last month. “We humans are born explorers. We were hunter-gatherers for most of our existence before farming,” Chesky told employees on a recent conference call. “I just want to tell you that Airbnb is going to be better than ever when we get through this crisis.”

But Chesky’s own hold on the company no longer can be taken for granted. It is a scenario that few would have envisioned as he built Airbnb into a travel giant. Atkin, the former Airbnb executive, said he recalled a conversation he had with the CEO several years ago when he was trying to improve the company’s culture. 

“I want to be running it forever,” Atkin recalled Chesky saying.

—Priya Anand contributed to this article.