To help the home-sharing company Airbnb Inc. to develop new services and fund growth initiatives, a $1 billion debt facility from some of the largest U.S. banks has been secured by the company, sources close to the matter told the media.
JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp led the debt deal. According to the people, who didn’t want to be identified talking about a private transaction, Morgan Stanley also participated in the deal.
More money to spend on global growth strategies and expansion beyond home-sharing would now be available with Airbnb by way of the financing. Bloomberg reported in March that the San Francisco-based company is running a TV ad campaign right now, a particularly pricey form of customer acquisition and is building add-on travel services.
Investment banks often arrange debt facilities for successful private companies in hopes of building relationships to win future business like underwriting an IPO even though Airbnb hasn’t announced plans for an imminent initial public offering yet. A similar $8 billion package that was obtained by Facebook in 2012 had helped the company to take the social network operator public two months later. The find providers in that case had been a group of banks.
There were no comments to media queries on the matter from Bank of America and Citi. There were also no comments from the representatives for JPMorgan and Morgan Stanley and a spokesman for Airbnb.
Uber Technologies Inc. had recently raises more than $11 billion in cash and debt. On the other hand Airbnb was last valued at $25.5 billion. When Uber, worth almost $68 billion, closes its latest debt financing, its value could climb by at least $1 billion.
Since Airbnb and Uber have come to define the on-demand economy and because they were founded within a year of each other, the two companies are often discussed in the same breath. However the two companies differ drastically in their spending and fundraising practices. While Uber is spending heavily to subsidize growth and battle well-funded rivals, Airbnb runs a comparatively low-cost business.
Uber lost $1.7 billion on $1.2 billion in revenue in the first three quarters of last year. Airbnb has generated roughly $1 billion in revenue last year and has lost less than $250 million since it started in 2008, said a person familiar with the matter.
Revenues from booking payments people make to the company, which it passes on to hosts later, Airbnb also has generated more than $2 billion in cash and more than $2 billion in customer deposits.
Didi Chuxing in China, Lyft Inc. in the U.S., Grab in Southeast Asia and Ola in India is giving fierce competition to Uber. Besides older solutions like HomeAway, Craigslist and the hotel industry, Airbnb on the other hand has few competitors.
“Airbnb already has a dominant market position and pretty strong network effects that will let it hold onto that position while Uber is still battling,” said Arun Sundararajan, the author of a new book on the sharing economy.
(Adapted from Bloomberg)